What Is RegTech? The simple answer would be Regtech is the management of regulatory processes within the financial industry through technology. They are a facilitator, a bridge, to use new technology to comply with rather existing or future regulatory requirements. It has a purpose, to address the vertiginous growing pace fo FinTech in the market. The main functions of Regtech include regulatory monitoring, reporting, and compliance and the RegTech growth figures are high, with the market expected to be worth $12.3 billion by 2023, up from its current market value of $4,3 billions
However to understand the Regtech concept, we must go back to the financial crisis of 2008, after the crash of Lehman Brothers, the whole society wondered: How on earth could this have happened? and how come the different financial organizations had not been able to avoid the situation? Consequently there was an increase in the regulation of the financial sector, in turn and perhaps as a consequence of the crisis, the search for new business models and new levels of efficiency, resulted in an increase in the disruptive use of technology within the financial sector. Advances in technology led to an increase in the number of financial technology companies creating technology-driven products to improve customer experience and engagement with financial institutions.
With the financial system abruptly displaced from its comfort zone, digitization became a necessity in order to continue operating in a competitive manner. Reliance on consumer data to produce digital products has already raised concerns among regulators calling for more laws on the use and distribution of data privacy.
However, in recent years, the maturation of technology and the high rate of digitization of the economy and society, generated the need to combine more measures and regulatory laws in a very rigid sector that in a very short period of time generated a strong dependence on technology.
Financial industry are dealing with more regulation, more changes, and more complexity than ever before. In the face of this looming regulatory burden, Regtech emerge to respond to this need and ensure compliance through digital innovation.
Regtech benefits for the financial industry
In terms of benefits and added value for financial companies, Regtech initiatives can make a difference in data protection and prevent the leakage of sensitive information, however there are more benefits:
- Greater accuracy and comprehensiveness. Manual processes tend to create gaps in the compliance operation, leading to human error and increased exposure. Implementing the right technology (and integrating those technologies thoughtfully where necessary) shores up gaps and creates a streamlined compliance process.
- Change the focus of your business. Traditional banks, news digitals banks or Fintechs and require more effective systems for identity verification and surveillance of operations. Digitization allows you to boost your effectiveness in terms of compliance and transparency, basic pillars in customer centric-vision-
- Improved risk management. Many RegTech tools help protect against various types of risk, including market abuse, cyberattacks, and fraud, by monitoring systems and alerting personnel to suspicious activity.
- Digitizes the relations with the public administration. Allows you to integrate strategic areas such as governance, contingencies, reporting and control for better regulatory management. This function results in an improvement in relations between official bodies, authorities and your business.
- Efficiency gains. As regulation continues to grow, it becomes nearly impossible for compliance personnel to keep up without the aid of technology. Technology, capable of processing a high volume of data at incredible speeds, can quickly parse and analyze raw legal text and extract valuable insights.
RegTech is an emerging trend and there is not even a closed definition, we must understand these are aligned with its existing process and although it is true that all safeguard that financial instruments are framed within the law. The technologies can be very different: IA, blockchain , digital onboarding, Big Data, Digital Certificates, Identity Access Management etc.
European regulatory framework on which Regtech is based
The name itself indicates Regtech = Regulation + Technology, we could not obtain a general perspective without talking about the legislation that guarantees a comprehensive and shared system of standards to prevent Cybercrime and make this digitization of the financial sector possible. Here are the main regulations:
- AML5 (Anti Money Laundry): this regulation prevents financial cybercrime by checking customers during the customer onboarding process and following their economic activities to avoid frauds and illegal actions.
- General Data Protection Regulation (GDPR): This is the legislation that regulates data protection and privacy for individuals within the European Union.
- PSD2 (Payment Services Directive 2): this norm’s aim is the alignment of payment regulation to the state of the market and technology.
- eIDAS certification: The eIDAS Regulation ensures the cross-border recognition of electronic identification means of natural and legal persons within the EU, as well as the trust services for electronic transactions.
- SEPBLAC & BaFin: the first refers to the Spanish Financial Intelligence Unit whose duty is to prevent money laundering and terrorist financing. The latter refers to one of the largest financial supervisory authorities in Europe.
Regtechs for innovation
Euronovate Group, to which Vintegris belongs, is one of the European leaders in digital transformation, digital transaction management and digital identification, it has recently been included in the RegTech100 2021. A list with the 100 most innovative RegTech companies worldwide, meaning the companies “every financial institution needs to know about as they consider and develop their mission critical RegTech and digital transformation strategies”. Our Group has been included in this exclusive list of IT corporations for providing technical solutions focused on the challenges faced by financial institutions in front of international regulations.
If you are interested in knowing more about innovative digital solutions for the financial industry, request a demo or if you have any questions, we encourage you to contact us. We will be delighted to help you.