The Regtech sector (a portmanteau of “regulation” and “technology”) can be defined as an ecosystem of technological tools and solutions designed to help businesses and financial institutions (banks, insurance companies, mutual insurance companies, etc.) comply with regulations and address related challenges. In other words, Regtech companies leverage various cutting-edge technological tools to optimize compliance and risk management. Often startups, these companies offer solutions whose full scope has yet to be fully realized.
The Foundations of Regtech Solutions
The Regtech landscape has been developing for just a few years. At the root of this array of solutions are the financial challenges that arose after the 2008 financial crisis. A flood of regulations was introduced to reassure the public and restore confidence in financial institutions: banks, financial institutions, insurance companies, and so on. As shown in Deloitte’sInside Magazine—2017 Edition, regulatory compliance accounts for more than 15% of the workforce in these sectors.
As of now, we can say that it is still still a work in progress, as new opportunities continue to emerge over time and as regulations evolve. These tools are generally designed to address very specific needs in the regulatory field (compliance, risk management, regulatory reporting, identity verification, transaction tracking, etc.). Because they focus on highly specialized issues, some Regtech companies consequently have a rather long implementation cycle.
Originally, RegTech solutions were primarily aimed at “legal” departments, given the specific nature of the issues they addressed (KYC management, transaction monitoring, anti-corruption efforts, etc.). Today, regulatory compliance is no longer limited to the legal domain; it also affects business units, which must take ownership of these issues to become more responsive.
While there is no doubt about the value of Regtech, its scope and implications remain difficult to grasp. The abundance of solutions—some more specialized than others—does little to clarify the choices available (see Deloitte’s article “Regtech Universe 2020 ”). Certainly, having access to expert guidance to navigate the ever-changing regulatory landscape is appealing to players in the financial sector as well as others. But how many tools should one stack on top of one another? And in this emerging landscape, how can one distinguish established players from young startups that might be overshadowed by the next revolution or the next innovation?
Compliance: Categorizing Regtech Solutions and Aligning Processes
Within the Regtech family, let’s take a closer look at the category that, according to Deloitte (1), includes the most players: compliance management, with more than 146 solutions out of the 362 listed in 2019. Compliance is now more than ever a key challenge for banks, insurance companies, and mutual insurance companies, which must ensure compliance with regulations that are constantly being updated.
This category encompasses a wide (perhaps too wide) range of solutions: from regulatory data collection tools to automated task tracking and the centralization of data on business partners for risk management, among others. The landscape is turning into a “black hole” where it can become impossible to find your bearings or make an informed choice.
All of these solutions are based on modern features and technologies designed to make employees’ work easier… but do you have to be an expert to stay compliant? Do you always need more and more complicated technologies to address the daily, pressing challenges that are vital to your business?
Should Regtech overlook the role of humans in sectors such as banking, insurance, and mutual insurance, where the stakes are enormous? For DAMAaaS, Technology should support employees and take the work off their hands. The use of RegTech solutions only makes sense if a genuine partnership between humans and machines or software services is established. Technology alone cannot guarantee regulatory compliance. Compliance requires analysis and specialized expertise that only humans can provide. RegTech solutions therefore facilitate this work—for example, by automating data collection so that all documents are stored in a single location, or by strengthening processes with rules, alerts, tracking, signatures, and validations, among other features.
Keep in mind that these tools are designed to support you in your compliance efforts by providing a framework for your work, procedures, evidence collection, and so on , but they do not replace your teams. Regtech solutions provide business leaders—including those in compliance—with more effective tools to carry out their day-to-day work. Their analytical skills remain indispensable!
(1) Source: https://www2.deloitte.com/lu/en/pages/technology/articles/regtech-companies-compliance.html
