Compliance, a buzzword in the fintech industry is keeping all fintech firms on their toes. With the advent of fintech services and their global adoption, all in the last recent years, the risk of cyber security getting comprised has become high.
Cyber threats and malevolent agents have become a prominent risk in the system. The level of advancements in fintech development is impressive. However, talent isn’t restricted to the good side of fintech. With advancing technological developments shaping the fintech industry, the level of technology being employed by hackers and malicious parties is immense.
To tackle this level of noise and intrusion from unwanted parties, regulatory bodies of the fintech world have become increasingly active and robust to match pace with the dynamics of fintech.
Background of Fintech Regulations
- According to a report, there were approximately 220 compliance revisions that fintech firms had to manage daily.
- Since the onset of globalization back in 2009, the total of regulatory fines imposed on financial institutions and firms has exceeded $345 billion for different reasons.
- The average cost of fintech compliance has risen exponentially and is still rapidly rising.
An amalgamation of regulations and technology, RegTech is a crucial subset of fintech, which helps monitor advancements and activities to increase efficiency and safety in the entire system. RegTechs are technology firms that provide technological services to traditional financial institutions and fintech firms that help simplify compliance and regulatory procedures with the help of digitalization.
This subset of fintech has increased prominence and importance because of its supplementary nature of services which makes the entire system more efficient and effective. RegTechs use top-notch technologies that keep track of relevant international and country-specific compliance regulations and consequently, help the customer firm to tweak their system and procedures in such a way as to avoid any breaches and lags.
The use of technology to facilitate regulatory conformities has produced a revolution, rendering it a world of its own. RegTech promotes technological advancements to monitor internal as well as external activities, increasing security considerably and protecting the customer.
Main Technologies Supporting RegTech
With enormous amounts of data pouring in every minute of every day, companies have had to succumb to technology and automation to manage and make sense of it. Analyzing trends, customer reports, company assets, and financials, becomes achievable when such complex processes are supplemented by technology. The main technologies that support RegTech are:
- Artificial Intelligence & Machine Learning
- Cloud Computing
- Application Programming Interface
- Visual Analytics
The Future of RegTech
Owing to the mass adoption of fintech and the dynamism in the industry, regulatory practices have become a must for every subset instrumenting its role in fintech. RegTech has gained popularity because of the convenience it brings to all parties; regulatory bodies can keep better control even at the international level, startups can ensure all their activities are following all relevant compliances, etc.
The level of investments in RegTech has spiked by a huge margin in the past five years. This industry’s growth directly correlates with the fintech industry. As more and more fintech startups bring dynamic technological developments to the fintech world, the need for regulatory compliance and monitoring will only increase.
Thick files and folders containing hundreds of international and country-level regulations make it essential to streamline the regulatory system. Any miss or gap in monitoring can cause damage to a large extent. The level of investment that it takes for firms to deal with such issues is immense. But the potential cost that a company could incur on non-compliance with any of its activities would be much greater.
Companies have spent billions of dollars to streamline and monitor regulatory compliances. By 2022, the international regulation management market was expected to reach more than $200 billion.
Such extravagant costs have the potential to stub the market growth of RegTech as well as Fintech. However, relentless efforts are being made globally to minimize costs as much as efficiency and effectiveness allow.
The Purpose of RegTech
RegTech has two primary purposes:
- Regulating and monitoring fintech activities across the world according to regulations that have already been established in the past
- Continuous evolution and adaptation of new fintech trends and innovations that are emerging every day
RegTech is an inevitable subset of fintech that has made its position at the core of the industry. With changing and exhaustive guidelines making rounds globally, it has become an impossible task for financial institutions and fintech firms to not get technological supplements. RegTech helps simplify extensive processes by using various technologies to bridge the gaps between specified standards and industry practices.