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MARCH 10, 2021

The Rise and Rise of Regtech

Vladimir Dimitroff

Founder and Chairman at SEF

Reading time: 2 min


Why Regtech and Why Now?

A major contributing factor is the advancement of technology, new generations of cloud-based solutions and data capabilities, and intelligent automation – like these underpin the broader Fintech movement. But technology alone cannot explain Regtech, it only responds to demand driven by the so called “Regulatory Tsunami”. Since the financial crisis of 2008, an ever-increasing flow of new rules and directives aims to prevent shocks in the economy and protect consumer interests. This adds to the growing compliance workloads of financial institutions, where manual collection and processing of all the required information is no longer possible, and technology comes to the rescue.

Another, quite significant driver of Regtech proliferation and adoption is cost. Significant Compliance projects very often go over budget: for MIFID projects 57% of UK wealth managers reported exceeding the budget, for GDPR – 33%, and for SM&CR – 51% (according to the latest Compeer research). Yet an astounding 44% of firms said they don’t prepare separate compliance budgets.

Trends Inside the Sector

  • Open Banking provides both new use cases for Regtech, and facilitates Compliance solutions through seamless automated data flows using APIs. In the UK already 2.5 million consumers regularly use APIs for their financial needs, and volumes have grown from £ 67 million in 2018 to £ 6 billion in 2020.
  • Cloud computing – faster implementations and lower costs remove barriers for Regtech adoption and allow critical functionalities like real-time checks. The trend is towards CaaS (Compliance as a Service).
  • Digital Transformation – ongoing across Financial Services, it leads regulators to mandate automated seamless monitoring, checks and reporting, with systems expected to be ‘compliant by design’.
  • International developments – Brexit and on-going consolidations heighten the demand for cross-border compliance. It will be unsustainable for Regtech vendors to operate within a single jurisdiction, without meeting those international needs.

Regulations to Watch – and Act upon

2021 already fills institutions’ calendars with deadlines like the imminent SM&CR and the postponed SCA (Strong Customer Authentication) for September. In AML, the 5th Directive (5AMLD) will be followed by an even tougher 6AMLD. And the (particularly challenging) LIBOR Transition also has a deadline at the end of this year. The explosion of ESG investments in 2020 brings a plethora of complex requirements; a challenge for institutions and an opportunity for Fintech and Regtech providers.

Among these burning regulations, the SM&CR regime stands out with its nearest date, the impact on overall regulatory health and company culture, and the mentioned unexpectedly high cost. Many firms will try to meet requirements by the final 31 March deadline with manual processes, spreadsheet data and Directory entries without the help of Regtech. While SM&CR solutions are available and they don’t have to be too expensive, when considering deployment, it is important to remember that:

  • Regtech does not solve your problems, people do
  • Regtech liberates people to focus on things that really matter
  • Deliver good Customer Outcomes, as the ultimate goal of compliance