Reg-Tech Drivers

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Significant events such as the GFC had a major influence in the way financial businesses operated post-crisis. The reduction of their risk-taking, profitability and scope of their operations had taken place due to new post-crisis regulation which has dramatically increased the compliance burden on financial businesses and the cost of regulatory penalties. This new regulatory environment has become a major driver behind the emergence of RegTech.

While the term FinTech has only gained popularity in the past three years, the combination of finance and technology has had a long history. Impacting all areas of global financial systems, technology firms have transformed finance and raised new challenges for regulators and regulation.

In the last few years, regulators in countries such as the United States, Australia, the UK and Asia have been taking part in gaining a better understanding of FinTech dynamics to be able to develop new regulatory approaches. The application of technology to regulatory obligations and requirements offer major cost savings to financial companies, creating large opportunities for emerging FinTech start-ups, IT and advisory businesses. RegTech adds on to this and enables continuous monitoring that would improve efficiency, offering the potential of continuous monitoring capacity and live insights, through deep learning and artificial intelligence analytics, which look to prevent problems beforehand rather than react after the fact.

Comparatively while FinTech has an inherently financial focus, RegTech has the potential for application in a spectrum of contexts, from monitoring compliance to tracking global location of market participants on a real-time basis. From Know-Your-Customer principles to a Know-Your-Data approach which deals with everything such as digital identity, there is anticipation of evolution far beyond the financial environment.

For the last few years FinTech has grown organically lead by start-ups and IT firms, whilst RegTech has grown in response to financial institutional demand. The drivers of RegTech development has been driven by the demand for decreasing costs including the additional increase of regulatory fines. Looking forward the next stage is likely to be driven by regulators, where they seek to increase their supervisory capacity. Considering the scope and drivers of RegTech, IXT expects that this industry will focus on more business-to-business solutions in contrast to FinTech business-to-consumer.