Regulation Technology / RegTech

What is Regulation Technology?

RegTech refers to the set of technologies and/or software that address the regulatory challenges of financial institutions and companies. It uses innovation in technologies and techniques to meet regulatory requirements and keep up with emerging statutory laws.

Rapid implementation of new technologies, complex statutory requirements and the need to be updated about current regulations and ongoing directives gave shape to RegTech to meet compliance standards.

What does RegTech do?

RegTech uses new technologies like cloud, open data models; AI and ML to enhance the regulatory process for meeting  ongoing requirements of compliance. It complements the in-house compliance processes, audit, and risk workflows; or replaces them wholly through new technologies that update in real-time. Services include risk management protocols, controls to actively mitigate risk, updated with global regulations, checks against daily regulatory alerts, KYC and AML/CTF compliance with customised solutions.

Are there different types of RegTech?

Innovations in compliance and risk management practices in RegTech have created the following types:

– Client Onboarding, KYC, Identity Management, AML
– Operational Risk Management
– Regulatory Reporting
– Risk Analytics
– Recommendations

What industries use RegTech?

– Banks and financial institutions
– Financial services sector – money remittance, currency exchange, loan, card issue
– Insurance
– High-risk sectors – bullion, cross-border trading, jewellery, real estate, automobile, luxury goods
– Ecommerce
– Travel and hospitality
– Healthcare
– Casino and gaming
– Service sector – finance, law, accounting, consulting

Have a look at some of the industries that use RegTech on:

How RegTech relates to financial institutions?

Financial institutions handle new accounts, loans, credit card and other services, based on the foundation of trust. Where the customer has wrongful intentions or a history of illegal activities, the bank or financial institution becomes the medium for financial fraud, money laundering practices, loan defaults and dubious business exercise like use of shell firms. In due course of time, there is rapid erosion of funds from fraud and compliance evasion. As financial institutions are the backbone of an economy, there is the risk of market collapse and serious economic depression, the effects of which are felt across the world and for a long duration.

However, RegTech with its services of regulatory compliance and KYC support sustains the financial system with a prevention component as well as ongoing compliance.  This fortifies a financial institution against financial crimes, money laundering or terrorist financing.

What is the importance of RegTech?

With over 750 global regulators and an average of 201 daily regulatory alerts, it is RegTech alone that can keep pace with new regulatory laws and give ongoing support of compliance. Being in a specialised service sector, it offers risk management solutions tailored to industries and jurisdictions.

The advantages of RegTech

RegTech offers multiple advantages. It ensures keeping up with regulations and compliance requirements in real-time. With use of latest technologies and tools, it brings the benefits of innovation in regulation. Enhanced customer experience, risk management and appropriate recommendations are other benefits of RegTech solutions.

Companies can cut down regulation overheads with use of third-party RegTech services. Higher ROI and investor confidence create a differentiator in a competitive environment.