The role of technology in compliance is becoming increasingly important as regulatory requirements become more complex and demanding.
Regtech, a rapidly growing industry that uses technology to assist financial institutions and other businesses in meeting regulatory requirements, comes into play here. In this article, we'll look at the regtech industry and where it's going in the future.
What Is Regtech?
Regtech is an abbreviation for regulatory technology, which refers to the use of technology to assist businesses in meeting regulatory requirements. This can range from automating compliance processes to analyzing data to detect risk and fraud.
The regtech industry is rapidly expanding as businesses increasingly rely on technology to help them comply with an increasing number of regulations.
The global regtech market is expected to reach $55.28 billion by 2025, with a compound annual growth rate (CAGR) of 23.5% from 2018 to 2025, according to Allied Market Research.
Trends and Developments in Regtech
So, what are some of the key developments and trends in the regtech industry? Here are a few to be on the lookout for:
Machine Learning and Artificial Intelligence (AI)
AI and machine learning are becoming increasingly important in the regtech industry. These technologies can be used to analyze massive amounts of data in order to detect patterns and anomalies that may indicate risk or fraud.
AI and machine learning, for example, can be used to analyze transaction data in order to detect suspicious activity or to analyze customer data in order to identify high-risk customers who may require additional due diligence.
Blockchain
Blockchain technology is also being used to aid in compliance in the regtech industry. Blockchain is a distributed ledger that can be used to securely and transparently record transactions.
This is especially useful for meeting anti-money laundering (AML) and know-your-customer (KYC) requirements because it provides a secure and tamper-proof record of transactions.
Cloud Computing
Another trend influencing the regtech industry is cloud computing. Businesses that use cloud-based solutions can access compliance tools and services on-demand, eliminating the need for costly infrastructure and software investments.
This is especially beneficial for smaller businesses that may lack the resources to invest in compliance technology.
Collaboration in Regtech
Collaborative regtech is a new industry trend that is gaining traction. This entails multiple regtech companies working together to provide a more comprehensive and integrated compliance solution.
Working together, regtech firms can provide more value to their customers and assist them in meeting a broader range of regulatory requirements.
What Is the Future of the Regtech Industry?
Looking ahead, the regulatory technology industry is expected to grow and evolve as regulatory requirements become more complex and demanding. Here are some predictions for the industry's future:
Integration with Business Processes Has Been Improved
As regtech solutions advance and become more sophisticated, they will become more integrated with core business processes. This means that compliance will no longer be a separate and disconnected function, but rather a seamless and integrated part of the business.
Increased emphasis on data analytics
As businesses seek ways to use data to identify risks and improve compliance processes, data analytics will continue to play a central role in the regtech industry.
This will necessitate a stronger emphasis on data quality and management, as well as the creation of more sophisticated data analytics tools.
More collaboration and collaboration
As businesses seek more comprehensive and integrated compliance solutions, collaboration and partnerships will become increasingly important in the regtech industry.
What Challenges Is the Regtech Industry Facing?
Whether it’s institutions or regulators, there are some key challenges which the regtech industry must tackle.
Financial institutions are currently spending approximately $80 billion USD on governance, risk & compliance.
And, with nearly half a million pages of regulatory paperwork being drawn and published every year, legislative initiatives are aplenty.
This may have just been the catalyst for the Regtech industry to build next-gen solutions which tackle inefficiencies, such as data standardization technology and more efficient management systems.
Moreover, this was a driver to bolster cooperation amongst jurisdictions on regulatory framework, infrastructure requirements, and the general regulatory environment.
However, this growth was somewhat scattered and led to perhaps what can be considered regtech’s main problem.
As such, for the main challenges in the regtech industry, we’ve highlighted 2 which might stem from the same issue:
- Fraud monitoring systems: Fraud monitoring and AML procedures are still not centralized nor coordinated. By joining efforts, efficiency and effectiveness would likely be improved.
- Data management standards: there still seems to be a lack of harmonized concepts in terms of reporting, data standardization, and regulatory concepts. Given how these concepts widely differ on the international playing field, there is still too much heterogeneity in regulations and regulatory requirements, but also in results and data points. This makes it so that there is little to no incentive in building solutions and, in that regard, hampers both the efficiency and the stability of our global financial system.
Standardization and harmony seem to be transversal to all the key issues the regtech industry is facing. This points to a much-needed consolidation as a way of addressing disparity within the industry and balancing the market.
Wrapping Up
To summarize, the regtech industry is rapidly expanding and evolving, driven by the growing need for businesses to comply with regulatory requirements. The role of technology in compliance is becoming increasingly important as regulatory requirements become more complex and demanding.
Trends, such as artificial intelligence, blockchain, cloud computing, and collaborative regtech also play important roles.
Looking ahead, the regtech industry is expected to become more integrated with business processes, with a greater emphasis on data analytics and more collaboration as well as partnerships among regtech firms to provide more comprehensive and integrated compliance solutions.
The global regtech market is expected to reach $55.28 billion by 2025, making the regtech industry an essential part of the business landscape by providing businesses with the tools they need to comply with regulatory requirements and stay ahead of the curve in an increasingly complex and dynamic regulatory environment.
