“Like FinTech, PayTech, and many other combinations of the word tech, RegTech is just another example of an industry that is being changed rapidly by the introduction of software. There has been technology used at various levels in the Regulatory space for over 20 years. However, what the new RegTech label recognizes is that the gap between software and non-software enabled services has widened significantly.”
– Alan Meaney (CEO of FundRecs)
You’ve heard of FinTech and the ways that forward-thinking startups are innovating slower moving enterprises, now it’s time to talk about the latest ‘tech’ buzzword disrupting the industry– RegTech.
How important is RegTech do you ask? Deloitte dubbed it “The New FinTech” and we’re here to see if they are onto something, or just buying into the hype.
At its core, RegTech, a blend of the words “regulatory” and “technology”, addresses regulatory challenges in the financial services sector. It’s the use of technology to digitize regulatory and compliance requirements companies face in an efficient and inexpensive way.
According to John Humphries, the CEO of RegTech company, Risk Priorities, “some have defined RegTech as a tool to improve efficiency and effectiveness, [while] others describe RegTech as a phenomenon, a global paradigm shift and a strategic opportunity that will help companies successfully execute their business models in the context of a safe and sound global financial system.”Some say #RegTech is a phenomenon & strategic #opportunity - John Humphries, CEO, @RiskPriorities Click To Tweet
Regardless of where you stand on the meaning of RegTech, it is an undeniable truth that regulation needs to be digitized in order to meet the increased reliance companies and individuals have on FinTech.
Is FinTech not enough?
Following the 2008 crisis, financial institutions had to radically alter the way they worked and the way they were run in order to stay afloat in the financial space. One of the results of a change in structure was the emergence of innovation in the space where old financial institutions once stood. Fast forward to 2017 and the world is full of FinTech companies looking to disrupt current processes through simplified tech-driven and customer centric solutions.
The problem with this is that many of the innovations that came about met the need of end users but not those of the regulatory bodies that the financial institutions must adhere to. Since much of the financial crisis was the result of a lack of regulation, it became apparent that the innovation and digitalization of financial institutions must coincide with equal innovation and digitalization of the regulatory procedures… and that is how RegTech came to be the up and coming industry of 2017.
RegTech to the Rescue
In an era where individuals and companies alike are looking to take transactions online, RegTech aims to digitize the way regulation and compliance is managed in order to facilitate the scaling of FinTech solutions.
The lack of modern innovation concerning the methods of compliance and regulation is one that financial professionals are aware of, and furthermore, recognize as a void in the FinTech industry. This is why the disruption the RegTech industry has caused will likely stick around for a while – because RegTech solutions are not only needed but wanted.#RegTech solutions are not only needed, but they are wanted. Click To Tweet
The goal of RegTech, beyond digitizing regulation and compliance processes, is to ensure that another financial crisis does not occur. To do that, RegTech needs to be easily integrated while simultaneously transparent and secure. It is important for innovators in the RegTech industry to ensure that their solutions work alongside legacy systems since the thought of replacing entire systems is perceived by decision makers and executives as time consuming and costly and will likely hinder the speed at which RegTech is accepted.
Who needs RegTech solutions?
The quickie answer? Everyone.
Any industry in which compliance is part of the operations could benefit from innovations in RegTech. If a company lacks BI (business intelligence) and regulation and compliance tools, they are at risk. Additionally, if a company relies on manual, legacy, or multiple solutions to manage compliance, RegTech is a welcome and needed breath of fresh air – and we’re not the only ones who think so!
In the last five years alone, over $3.2 billion have been raised in just 317 deals, showing that investors are banking heavily on the emergence of RegTech as the solution that will scale FinTech worldwide. While many of the startups in the RegTech industry are FinTech focused, RegTech will quickly prove its value in almost any other industry ranging from healthcare to cyber security, blockchain and even medical marijuana.
Is RegTech the new FinTech?
By simplifying regulation and compliance processes, many more companies will begin adopting financial technologies and digitizing processes and systems that, in the long run, will yield a win-win situation for both the company and their clients.
So, while FinTech certainly meets a need for simpler and more accessible innovations in the financial world, the way that will happen is certainly through RegTech.