First let’s start by explaining what is Regtech. A quick visit to Wikipedia will give you a kind of complex definition on Regulatory Technology it says it’s a new field within the financial services industry which uses information technology to enhance regulatory processes with the goal to tackle various regulatory problems, since it’s focused on regulatory monitoring, reporting and compliance benefiting the finance industry. This will make regulatory processes more transparent, consistent and standardized.
What this definition actually means is that regulatory technology helps banks meet regulatory requirements via technology and its exponential growth is mainly due to two reasons: the rapid development of FinTech, that has already proven its disruptive impact on financial services and the constant changes of financial regulation.
Regtech is here to produce efficient, cost-effective and innovative responses to regulatory demands. Until now financial institutions fought to keep up with new rules as well as understanding them, not to mention this was all done manually.
When Regtech first appeared in 2015 it was considered “a sub-set of Fintech”, now it has taken its own space and it’s rapidly separating itself from fintech. It is understandable why, banks don’t want to repeat the same mistakes from the past, the ones that took the financial system to collapse and some banks to bankruptcy, now, more than ever is important to manage risks, maintain the capital and create a more transparent financial sector.
According to International Banker “there are seven distinct areas within compliance and regulatory reporting that have the potential to be improved by regtech and those are: risk-data aggregation; modelling, scenario analysis and forecasting; real-time monitoring of payments transactions; identification of clients and legal persons; monitoring a financial institution’s internal culture and behaviour; trading in financial markets and identifying new regulations”.
All of the above are possible because of data analysis, machine learning and artificial intelligence. For example, Sybenetix, that was acquired by Nasdaq on September 2017, made behavioural analytics software to monitor individuals in financial institutions, looking out for things like unusual behaviour or suspicious activity that could be a sign of misconduct.
Some people believe regtech firms will start small but they’ll quickly grow and reach leading players in the market – Sybenetix is definitely a good example – this even before it reaches the masses, because when it does it’s a matter of months or a few years until it’s spread all over firm’s business strategies.
Regtech can be the next big thing, it matters and it’s extremely important and also won’t compromise Fintech place in the industry. Time will tell. But one thing is for sure is what we’re seeing right now is just the tip of the iceberg which means it’s a great business to invest in as well as a great business for a successful startup if you happen to have the skills.