Imagine if financial companies can collect every detail about mistakes they’ve made in the past few years and use the information to come up with suggestions to do better next time. With this ability, many such firms would be able to find areas for improvement easily and ensure that due diligence is maintained at all times.

That is the very essence of regtech. It’s a combination of the words “regulatory” and “technology” and is a relatively new field that aims to help financial organizations analyze big data to predict risk areas they should focus on to ensure compliance with regulations.

Regtech solutions should provide a number of features that include handling real-time data in the proper context and integrability with existing systems. They should also help users analyze trade-offs between risks and rewards and more.

Other interesting terms…

Read More about Regtech

Regtech traces its roots to the 2008 financial crisis, when the financial sector decided it needed stricter regulation.

What Are the Characteristics of Regtech?

Regtech is characterized by agility, speed, integration, and analytics.

  • Agility: Regtech should be able to quickly separate and organize cluttered and intertwined data sets using technology.
  • Speed: Regtech must also be able to generate reports fast.
  • Integration: Regtech should be easily integrable into already existing systems and solutions.
  • Analytics: Regtech must use analytic tools to mine big data sets and use them for various purposes.

Why Was Regtech Developed?

Regtech came about to ease financial companies’ need to comply with the increasing number of ever-evolving regulations. Regulatory compliance is a must, especially for financial companies, that need to adhere to the mandates of laws not just in the country where they’re headquartered but also those in all the nations they operate.

What Are the Benefits of Using Regtech?

Financial service providers can reap the following benefits from using regtech:

  • Efficiency: Regulations can change over time, making it nearly impossible for compliance personnel to keep up without using technology. But they need technology that can process a high volume of data at incredible speeds. They also require tech that can parse and analyze raw legal text and extract valuable insights fast.
  • Accuracy and comprehensiveness: Manual, siloed processes can create gaps in compliance operation, leading to human error and increased exposure. The right technology can shore up gaps, creating a streamlined compliance process.
  • Internal alignment: Companies need technology that enables greater transparency throughout the business. The tools should connect siloed people and processes to come up with better insights that can be shared faster. All that leads to a stronger compliance culture.
  • Risk management: Many regtech applications can help protect organizations against various risks, including market abuse, cyber attacks, and fraud. How? Regtech can monitor systems and alert personnel to suspicious activities.

Is Regtech Different from Fintech?

The quick answer is yes. Regtech looks into how institutions, banks, insurance companies, and other regulated entities can comply with regulations efficiently. Fintech, meanwhile, is an innovative solution, typically for consumers, that fills in gaps left by financial service providers, bigger banks, or insurance businesses.

Fintech has nothing to do with regulatory compliance. It has more to do with consumer satisfaction. Read more about fintech here.

Why Do Financial Service Providers Need Regtech?

Financial service providers need regtech because the cost of regulatory noncompliance can be very high. Banks, insurance companies, and other financial service providers that operate in the European Union (EU), for instance, can get fined as much as 4% of their annual global revenue or 20 million euros, whichever is greater for noncompliance.

What Are Some Examples of Regtech Providers?

Here are three sample regtech manufacturers:

  • Trunomi: Helps users securely manage consents to use customer personal data.
  • Silverfinch: Helps connect asset managers and insurers with one another via a fund data utility to meet Solvency II requirements.
  • Fund Recs: Helps users oversee how data is managed and processed by the fund industry.

There are tons more. The following image, in fact, shows the regtech startups as of 2020.

regtech startups


Key Takeaways

  • Regtech is a combination of “regulatory” and “technology” that refers to tools that help financial organizations analyze big data to predict risk areas they should focus on to ensure regulatory compliance.
  • Regtech solutions are characterized by agility, speed, integration, and analytics.
  • Using regtech results in efficiency, accuracy and comprehensiveness, internal alignment, and risk management.