RegTech: Solutions for Regulatory Compliance Requirements
Regulation technology, or RegTech, encompasses any technological innovation that helps improve efficiency and transparency in regulation. RegTech has come about as a result of the growing need for more effective and efficient means of ensuring that businesses, both traditional and startup, stay compliant in industries facing increased regulatory protocols and complex regulatory transitions. Financial technology, or fintech, is most often associated with RegTech and is regarded by many as a driving force behind its rapid growth and development.
Why Do We Need RegTech?
The Institute of International Finance reported that a major U.S. bank said in a 2014 letter to its shareholders that it spent $2 billion to hire 13,000 new employees between 2012 and 2014 to support its regulatory compliance function. During that same period, this bank spent $600 million on regulatory and control technology.
In a world full of computerized systems, the financial services industry has become highly dependent upon timely and reliable access to vast amounts of both structured and unstructured data. The reality is that today’s regulatory compliance process can no longer viably support expensive and time-consuming, work by hordes of workers. Hiring more manpower alone is not enough to stay compliant.
RegTech is the result of fintech and big data being applied to regulation. Financial institutions have many different internal data systems, making it difficult for them to quickly compile data to satisfy requests from regulators. As the amount of data stored inevitably increases, so too does the challenge to meet regulatory requirements. Automating this work with the help of RegTech helps institutions alleviate the burden. In order to enable effective competition and promote innovation, the adoption of RegTech solutions will be inevitable.
Who Are the Key Players?
With solid support from the UK Government Office for Science and the Financial Conduct Authority (FCA), the UK appears to be leading the global charge for RegTech. An article published in December 2015 listing 21 rising RegTech startups was heavily weighted in favor of the UK and Ireland. The 21 companies listed provide a range of services including risk control and management, activity and transaction monitoring, know your customer (KYC) identity verification compliance, regulatory reporting, risk data warehouses, and case management tools.
In North America, a number of RegTech firms, including IdentityMind, Quarule, Tradle, Trulioo, and Trunomi – made the RegTech list.
Is RegTech the Future of Financial Regulation?
As the financial service industry becomes evermore data-driven, greater automation will be essential in order for companies to maintain compliance. In a July 2015 report released by research firm Celent, RegTech will represent the new face of financial regulation. There will be much more collaboration and two-way dialogue between regulators and institutions, data collection will be automated, data presentation will become standardized regionally and globally, and open source compliance systems with compliance criteria built into their protocols will encourage greater fintech participation.
“In the short term, RegTech will help firms to automate the more mundane compliance tasks and reduce operational risks associated with meeting compliance and reporting obligations. In the longer term, it will empower compliance functions to make informed risk choices based on data provided insight about the compliance risks it faces and how it mitigates and manages those risks,” said Sean Smith, a partner in Risk Advisory at Deloitte.
The complexities of growing amounts of data stored in various locations in different formats require smarter, more efficient solutions. Just as fintech is revolutionizing financial services, RegTech is revolutionizing the compliance process for financial services.
Find out how your business can benefit from an automated compliance system. Trulioo’s GlobalGateway platform helps businesses in regulated industries meet regulatory compliance across multiple jurisdictions, reduce operational costs, and protect against identity theft and fraud. Contact our sales team to book a live product demo today.