Introduction to Reg-Tech

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The disruption of technological developments and increasing pressures of regulatory requirements are drastically changing the environment of financial markets and services. Recently, two terms have come to popularity:

  • FinTech – A industry of technology to deliver financial solutions that uses technology to improve activities in finance. The use of smartphones for mobile banking, investing services and Crypto-Currency are examples of technologies aiming to make financial services more accessible to the general public.
  • RegTech - A blend word of 'regulatory technology' that was created to address regulatory challenges such as regulatory monitoring, reporting and compliance in financial services through innovative technology.

Focussing on Reg-tech, two painful pressure points have risen in the financial industry which support its growth. On the expensive side, fines have risen for breaches and failing to comply with regulatory laws and the increasing costs of regulation and compliance has become one of the top concerns for Investment Managers industry wide. These two factors are the root causes for the driving development of RegTech and even though the 2008 Global Financial Crisis represented a turning point for both RegTech and FinTech, their growth journeys have been quite different. While FinTech growth has been pushed by start-ups, RegTech growth has been a response to the huge demands made by regulators and policy-makers.

Evidently the cost of regulatory and compliance obligations has increased, and this is providing a strong economic incentive for improvements in reporting and compliance systems to take control of risk, attend to increasing volume of data reports and decrease compliance costs.

The integration of a technological culture within the financial services industry has widened the scope to massively increase efficiency and help business owners achieve better outcomes. This also means to adhere to a more proportionate risk-based approach, where businesses can provide regulators and transparency to clients with access to and management of data that enables more specific and effective administration of market participants, figures and information. Due to RegTech, there is opportunity to minimize potential risks, as well being an essential response to the increasingly digital nature of finance.

Within the RegTech industry, key players are reaping better and efficient risk management regulatory compliance from automated processing. Although enhanced reporting accuracy and reduced compliance costs are not new incentives due to the previous emergence of new FinTech start-ups, RegTech’s growth is helping to further widen the gap between the accuracy and costs of manual and automatic compliance and monitoring. Paired up with recent developments in data science and analytics, Investment Managers now have systems available to substantially decrease costs and potential for regulatory fines.

Within the early signs of real-time, appropriate regulatory management that identify risks and assist with efficient regulatory compliance are emerging. IXT anticipates that the automation and streamlining of regulatory processes is only the tip of the iceberg towards a better and more efficient regulatory system that integrates digital technologies.