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August 2, 2017

RegTech Explained: 7 defining aspects of this emerging market

Regtech may prove to be one of the most distruptive applications of new technology, and it will influence multiple industries.

By Tom Ball

Regtech is an emerging market that is taking flight on the wind of new technologies, finding the same traction as Insurtech, another emerging market, and the now well-established Fintech.

As the name suggests, Regtech is specifically geared toward assisting companies with the process of remaining compliant with required regulation. The demand for support in this area is high because the traditional process is highly expensive in terms of both resources and time.

This new market has arisen at a fortunate time, as the financial crisis of 2008 has made a lasting impact with financial regulatory bodies ramping up the requirements to satisfactorily meet compliance standards.

Like Fintech and Insurtech, new technology will transform traditional processes by making them dynamic, meaning that rising to the challenge of meeting changing regulations is no longer a seismic event, and can be carried out fluidly. Some of the technologies at the heart of Regtech are cloud computing, machine learning and big data, while blockchain is also set to have a big impact on the emerging market.


As we have already mentioned, Regtech is arriving as a saviour at a time when regulation and compliance is posing an immense challenge following the financial crisis, so the improvements it could make to the current system are set to be disruptive in the truest sense.

In a similar way that Insurtech is a powerful benefit to all parties involved, Regtech will be beneficial to both the corporations striving to be compliant, and also to the organisations that are tasked with supervising the meeting of requirements.

These two elements struggle for the same reason, there is simply much more regulation to handle, and while this is a challenge for organisations such as banks to adhere to promptly and accurately, it is equally a major undertaking for watchdogs to keep up with the volume.

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RegTech Explained: 7 defining aspects of this emerging market

Machine Learning

Machine learning is a topic surrounded by excitement as the algorithms it is based upon could hold the potential to streamline processes across tech, while taking the weight off of skilled professionals who are drowning in data; it is this reason that makes it well suited to the work of Regtech.

Algorithms behind machine learning are the key to self-adjusting Regtech capabilities; this is because statistical analysis can be used to gauge risk. This same capability could allow an organisation to track down and identify anomalous behaviours that could be a result of fraud.


Regulatory jobs

Following the financial crisis, many major organisations, particularly banks made the move of drastically expanding teams responsible for compliance. Some banks in fact employed thousands of new employed for this purpose.

With Regtech poised to streamline the currently arduous process, it could be reasonably expected that a great deal of these positions could be cut back on to cut down on the immense costs that regulation is requiring from large organisations.

However, these organisations will still be in significant need of humans to be engaged in the important process. Particularly in terms of governance humans will remain essential, specific skill sets will be put to use in working on more difficult instances; this change is set to happen from top to bottom of the tech industry.


Regtech in other industries

Fintech is as the name suggests, technology used in the pursuit of enhancing financial processes, however, Regtech will find uses across a range of industries including shipping and pharmaceuticals for example.

Agriculture is another example of a critical industry that requires regulation regarding a variety of areas; being able to handle varying international regulations may also prove to be an important area for agriculture that can be aided by Regtech.

Tying into agriculture, food safety is another important aspect that requires strict regulatory compliance. Shipping is a colossal industry, and like Insurtech will have a major influence here, so too will Regtech when technologies such as blockchain mature and can be widely implemented.

What Regtech could do

Regtech is being taken very seriously, with the UK’s Financial Conduct Authority (FCA) formally showing awareness of the new approach, and it has been noted as a sub-set of Fintech. Some other expectations of what Regtech could be responsible for improving include identifying new regulations, and the identification of clients.

It could also be used for simulating and building models for the purpose of forecasting, helping to give a far more accurate picture of the future regulatory landscape, while also being able to handle real-time management, just as Insurtech will be capable of this by harnessing new technologies.

A list of tech trends also fit into the expectations of what Regtech could be capable of doing, with blockchain and biometrics among the main technologies that could be brought into play. Machine learning we have mentioned already, but robotics and AI could also be incorporated as an extension of this example.

RegTech Explained: 7 defining aspects of this emerging market

Regtech is already here

The name ‘Regtech’ is much younger than the concept of utilising technology innovation for the purpose of handling the complex requirements of regulation and compliance.

However, Regtech has been energised by the emergence and growing legitimacy of cutting edge technologies including blockchain and AI. These extremely disruptive tools also capture the imagination, and have stoked up a great deal of excitement.

Regtech is now moving with significant momentum, with hundreds of startups associating themselves with the new name. The new market is also gaining interest from some of the giants of tech industry, for example, IBM is pegged to be a major player in the world of Regtech in future.

READ MORE: 7 need-to-know things about emerging market Insurtech

UK Regtech startups to watch

Onfido is a startup that is aiming to provide fast and secure background checks using machine learning; these checks are necessary in many areas of compliance, and can be required for both clients and employees. This carries added importance due to the massive importance placed upon security.

DueDil is another stand out startup within the fast developing Regtech sphere. This company enhances visibility and transparency by collating massive amounts of information relating to registry data, trademarks and financial filings. The company has raised in excess of $30 million.

Percentile is able to use software for risk officers stationed within capital market firms for handling the complex regulatory requirements they are expected to comply with. Automation is the key in this process, and is set to free managers up to handle other work.

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