What's on with Regtech?
What Is Regtech?
Regtech is another addition to the ever growing X-tech phenomenum. Like Fintech, paytech and soon Insurtech, it is the contraption of Regulatory & Technology.
What is new with Regtech compared to what has been happening for the past 20 years is the technological approach taken to takle regulatory challenges: like uber revolutionised the way we use taxi, regtech aimed at bringing digitisation, network based solution, speed and agility to the regulatory space. KYC might be done using blockchain, avalaible to all players in the industry; AML can be achieved using Artifical Inteligence; regulatory financial reporting can be automated to reach real-time transparency across the market.
Regtech aims at tackling the regulatory inflation seen in recent years in a cost effective and agile way.
Why talk about it?
Regulatory inflation is driving cost through the roof
A McKinsey study estimated the cost of managing the regulatory environment to be more than 10% of all operational spending of major banks, at around $270 billion per year.
Regulators are getting involved
At a governmental level, the FCA was the first governmental body to establish and promote the term RegTech, launching in October 2014 “Project Innovate”, an advice hub that helps businesses to introduce innovative financial products and services.
In March 2015, a report by the UK Government Chief Scientific Adviser, stated that "FinTech has the potential to be applied to regulation and compliance to make financial regulation and reporting more transparent, efficient and effective – creating new mechanisms for regulatory technology, RegTech".
In 2015, the FCA has organised “call for input” to lay down the actions it needed to take to foster the devellopment of Regtech. It resulted in the Feedback Statement FS16/4 and a 2016/2017 action plan by the FCA.
The FCA has identified 4 themes:
Efficiency and collaboration
Integration, standards and understanding
Predict, learn and simplify
New directions
This feedback statement also set the the role the FCA wants to play in the regtech environment:
- drive industry standards
- improve collaboration and engagement
- provide certification
Since then the FCA has been hosting “Tech Sprints” (4 since 2016) described as:
TechSprints are two day events that bring together participants from across and outside of financial services to develop technology based ideas or proof of concepts to address specific industry challenges. These events help us to shine a light on issues and expand the discussion and awareness of potential solutions.
Business are getting involved
The U.K. and U.S. are leading in RegTech globally. Of the 127 RegTech companies that were tracked by Jan-Maarten (JM) Mulder, a FinTech investor and General Partner at Middlegame Ventures, over half are based in the U.K. and the U.S. Ireland is pulling above its weight when it comes to RegTech with 10% of the RegTech companies based there.
Who are the Players?
At the moment, RegTech companies seem to be focusing on the easier-to-tackle areas of RegTech such as regulatory reporting and KYC, which both simplify existing processes and reduce manual inputs.
As Sean Smith, a partner in Risk Advisory, Deloitte put it “In the short term RegTech will help firms to automate the more mundane compliance tasks and reduce operational risks associated with meeting compliance and reporting obligations. In the longer term it will empower compliance functions to make informed risk choices based on data provided insight about the compliance risks it faces and how it mitigates and manages those risks”.
Within the financial services, the main trend are:
- AML & KYC
- Regulatory reporting
- Blockchain based technology
- Trade monitoring
The “UK regtech valley”
On 22nd November, the UK government reaffirmed its commitment to having a leading regulatory and technology environment in the UK. Within the Autumn Budget 2017 speech, the Rt Hon Philip Hammond announced a new £10bn Regulators’ Pioneer Fund, established to “help regulators to develop innovative approaches aimed at getting new products and services to market”.
Of the 464 solutions listed in the RegTech Markets Directory, 147 are headquartered in the UK. In an awards process judged by a panel of industry experts, the top 50 firms were identified and over half of these were UK-based.
