RegTech companies

This year has been deemed the year of RegTech. Since late 2015, searches for the term “RegTech” has skyrocketed as a result of fintech firms disrupting the finance industry, causing major shifts in policies around the world. As RegTech companies continue to develop efficient and game-changing solutions that enable fintech innovation, it is also gaining momentum and the attention of governments, regulators, and industry players alike. To no surprise, we are witnessing more headlines about RegTech and how it is influencing both fintech startups and traditional incumbents.

Here’s a look at some RegTech news highlights from around the world.

Fintech and RegTech Featured in Hong Kong 2016 Budget

In his budget speech delivered in February 2016, Financial Secretary John Tsang Chun-wah devoted an entire section to the importance of fintech for Hong Kong. Mr. Tsang not only outlined how the Hong Kong government would support the region’s growing fintech industry, but he also highlighted how Hong Kong’s three key regulators would set up “Fintech dedicated platforms to liaise with industry” to provide guidance on how fintech startups can remain compliant with regulations.

APIs Key to Improving Regulatory Efficiency

At the end of March 2016, the Executive Director of the Monetary Authority of Singapore (MAS), Lawrence Ang, spoke at a conference about application programming interfaces (APIs) in the financial service industry.

“In the future, we have to think about RegTech -- regulatory technology -- smarter ways of doing things because guess what? When we are under industry distress, there is no place to wait for everyone to submit data,” Ang said. “So we need smarter ways.”

ASIC Proposes Regulatory Sandbox Exemptions

The Australian Securities & Investments Commission (ASIC) issued an update in May 2016 on its Innovation Hub after just over a year of operation. The Hub is focused on providing regulatory guidance to Australian fintech startups as well as a wide range of support measures to help them navigate the regulatory framework.

During the update, ASIC also announced that it would release a public consultation paper in June 2016 to open discussions on a proposed regulatory sandbox licensing exemption for eligible participants from the fintech industry. Some notable exemptions include a six-month window to test new financial services without a need for licensing and allowing sophisticated investors and a limited number of retail investors to participate in testing new services.

Roundtable Discussion on RegTech Yields New Ideas in the UK

In early March 2016, the Financial Conduct Authority (FCA), one the UK’s key financial regulators, joined key stakeholders such as RegTech providers, banks, and fintech startups in a roundtable discussion on RegTech. It was a very productive meeting, with some of the general themes being discussed being obtaining greater clarity from regulators, identifying problems within the existing regulatory regime, greater engagement between regulators and technical solution developers, and better communication among all stakeholders to improve regulations.

FCA Regulatory Sandbox Open for Business

The FCA in the UK officially opened its regulatory sandbox for applications from fintech startups seeking to test their solutions for regulatory compliance without fear of repercussions.

“Our aspiration is that the sandbox not only enables innovative ideas to be tested and brought to market, but also helps to reduce the time and the cost of getting them there,” said Tracey McDermott, Acting Chief Executive of the FCA.

Keeping Compliance Costs Down with RegTech

Major banks have been hit with regulatory fines in the billions of dollars due to a lack of compliance in recent years, and in response, financial institutions have spent record amounts on expanding their compliance teams in an effort to keep up with ever-changing regulations. However, simply increasing compliance budgets may not be the answer.

“There is no compensation procedure that will result in a count up of money spent on compliance [set] against breaches,” one regulator told The Financial Times. “Certainly, quality is more important than the amounts spent.”

In order to more effectively address concerns about staying compliant, RegTech automation can be more efficient and cost-effective than hiring hundreds of new employees.

40 RegTech Companies to Follow

Like in any emerging technology industry, RegTech has more than its share of startups that are breaking into this space. In order to keep track of the many players, we found a helpful article that lists 40 RegTech companies that are worth following. The list spans different areas of RegTech, including data analytics, compliance, regulatory oversight, and know your customer (KYC) due diligence.

RegTech: A $100 Billion Opportunity

As mentioned previously, banks are paying huge regulatory fines for non-compliance. In the U.S. alone, financial institutions have been hit with over $160 billion since the global economic crisis in 2008. In response, it is estimated that banks are now spending more than $70 billion on compliance, which presents a tremendous opportunity for RegTech companies, since they can offer tremendous value in this area.

By 2020, the demand for governance, regulatory, and compliance (GRC) software worldwide is expected to be just under $120 billion. While roughly 35 percent of current GRC software spending is happening in Asia-Pacific, North America will likely take the lead in the next few years. Although RegTech solutions could lead to a 600 percent return on investment with a payback period of under three years, most financial service providers are still slow to invest in RegTech.

Brexit, RegTech, and Change Management

In late June 2016, UK citizens will vote in a referendum to decide whether or not the country will remain in the European Union (EU). If the UK votes in favor of leaving the EU, the Brexit, the term commonly used to describe Britain’s departure, would take at least two years to complete, according to the BBC.

JWG recently published an analysis of the impact that Brexit would have on the UK, particularly from a regulatory perspective. It found that in order to successfully adapt to the shift in the regulatory regime, RegTech development must be accelerated so that the necessary massive change program could effectively mitigate the fallout from Brexit.

Compliance in the Era of Automation

During the Fintech Conference held in Vancouver in April 2016, there was a panel discussion on RegTech, digital identity, security, and privacy. The panel – made up of industry leaders, law enforcement, and lawyers – spoke about some of the challenges that RegTech companies currently face, such as a need for greater clarity regarding regulating fintech. They also encouraged greater engagement between RegTech firms and regulators to promote more collaboration that will result in better solutions.

This is clearly a lot of activity happening in RegTech globally. Companies operating in regulated industries like financial services are now seeing the value that RegTech can provide in easing their compliance burden.

“With more companies seeking opportunities and operating in more countries worldwide, the need for smarter solutions provided by RegTech companies will only grow,” said Jon Jones, President at Trulioo. “In a constantly-evolving regulatory landscape, businesses must find the best way to strike the balance between meeting the expectations of their customers and the policies enforced by regulators.”