What is 'Regtech'

Regtech is a blend word of 'regulatory technology' that was created to address regulatory challenges in financial services through innovative technology. Regtech (or "RegTech") consists of a group of companies that use cloud computing technology through software-as-a-service (SaaS) to help businesses comply with regulations efficiently and less expensively.

Breaking Down 'Regtech'

The aftermath of the 2008 financial crisis brought about an increase in regulation in the financial sector. Concurrently, there was a rise of the disruptive use of technology within the financial sector. Technology breakthroughs led to an increase in the number of fintech companies that create technology-driven products to enhance the customer experience and engagement with financial institutions. The reliance on consumer data to produce digital products has led to concerns among regulatory bodies calling for more laws on data privacy usage and distribution. The coupling of more regulatory measures and laws with a more technologized sector brought about the need for regulatory technology.

As of mid-2018, deregulation in United States — as seen in the unwinding of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) rules — has led to a slowdown in regtech company financing deals, though the compliance burden should still fuel the drive toward greater automation.

Regtech: How it Works

Regtech companies work in collaboration with financial institutions and regulatory bodies, and utilize cloud computing and big data for sharing of information. Cloud computing is a low-cost emerging technology that has opened up a world of new possibilities including the ability to share data quickly and securely with various entities. A banks that receives huge amounts of data may find it too complex, expensive, and time consuming to comb through. Using tools such as predictive analytics, a regtech firm can combine the complex information that the bank has with data from previous regulatory failures to predict potential risk areas that the bank should focus on. By creating the analytics tools needed for these banks to successfully comply with the regulatory body, the regtech firm has saved the bank time and money. The bank also now has an effective tool to comply with rules set out by financial authorities.

Regtech is an emerging community of tech companies that solve challenges that arise from a technology-driven economy through automation. The rise in digital products has increased incidences of data breach, cyber hacks, money laundering and other fraudulent activities. With the use of big data and machine learning technology, regtech reduces risk to company’s compliance departments by offering data on money laundering activities conducted online; activities which a traditional compliance team may not be privy to due to the increase of underground marketplaces online. Regtech tools seek to monitor transactions that take place online in real time in order to identify issues or irregularities in the digital payment sphere. Any outlier observed is relayed to the financial institution to analyze and determine if a fraudulent activity is taking place. Institutions that identify potential threats to financial security early on are able to minimize the risks and costs that are associated with lost funds and data breaches.

Regtech Applications

Regtech operates in various spheres of the financial and regulatory space. A number of projects that regtech automates include employee surveillance, compliance data management, fraud prevention, and audit trail capabilities. A regtech business can’t just collaborate with any financial institution or regulatory authority as it may have different goals and strategies in place that differs from the other parties. For example, a regtech that seeks to identify credit card fraud in the digital payments ecosystem may not find it worthwhile to pair with an investment firm that is concerned with its employees’ activities online or the SEC (Securities and Exchange Commission) whose current issue may be an increase in insider trading activities.

Regtech Examples

Some example of notable Regtech companies and the tools they have created include:

  • IdentityMind Global: Provides anti-fraud and risk management services for digital transactions by tracking payment entities
  • Trunomi: Securely manages the consent to use customer personal data
  • Suade: Helps banks to submit required regulatory reports without disruption to the banks’ architecture
  • Silverfinch: Connects asset managers and insurers through a fund data utility to meet Solvency II requirements
  • PassFort: Automates the collection and storage of customer due diligence data.
  • Fund Recs: Oversees how data is managed and processed by the fund industry (reconciliation)
  1. Compliance Cost

    Compliance cost refers to all the expenses a firm incurs in order ...
  2. Data Science

    Data science is a field of Big Data that seeks to provide meaningful ...
  3. Functional Regulation

    Functional regulation is a concept stating that a company with ...
  4. Regulatory Arbitrage

    Regulatory arbitrage is a practice where firms take advantage ...
  5. Comprehensive Automated Risk Data ...

    The Comprehensive Automated Risk Data System (CARDS) was a FINRA ...
  6. Consolidated Reports of Condition ...

    Consolidated Reports of Condition and Income are used by U.S. ...
Related Articles
  1. Tech

    What Are the Biggest Risks Associated With Banks Today?

    Evolving mechanisms and techniques of cybercrime have become the most severe risk associated with banks today.
  2. Tech

    How Big Data Has Changed Finance

    The vast proliferation of data and increasing technological complexities continues to transform the way industries operate and compete.
  3. Tech

    How Big Data Has Changed Insurance

    No longer confined to technology, big data has become integral to providing solutions to the insurance industry's long standing challenges.
  4. Insights

    Fintech in the Trump Era: Regulatory Changes to Expect

    Will Trump’s administration try to repeal Dodd-Frank, or simply change financial regulations?
  5. Tech

    Take Note Of Key Trends That Are Gaining Momentum

    Technology is on the rise and rapidly evolving. Prospective tech investors need to pay attention to trends and which sectors could be the next big thing.
  6. Tech

    Financial Advisors' Next Big Tech Tool: Big Data

    Here's how big data is playing a crucial role in the work life of financial advisors and some strategies on how to take advantage of the technology.
  7. Financial Advisor

    Asset Manager Ethics: Risk Management and Compliance

    Managers should create a compliance and risk function that is integral to the investment function in order to plan for the increasingly more common market dislocations that occur in the global ...
  8. Financial Advisor

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
  9. Personal Finance

    How to Get a Job in Compliance

    What it takes to become a compliance officer, why the field is so diverse, the job's function in general and within the finance industry in particular.
  10. Insights

    The Pitfalls Of Financial Regulation

    Regulatory actions usually have lofty intentions that end up with unintended and negative consequences.
  1. What are key government regulations that affect investing in the banking sector?

    Discover how the global financial crisis of 2008 changed the face of banking in the United States and around the world by ... Read Answer >>
  2. What are some of the major regulatory agencies responsible for overseeing financial ...

    Discover the specific responsibilities of some of the major regulatory agencies that oversee financial institutions in the ... Read Answer >>
  3. How does analyzing a bank's financial statements differ from companies in other sectors?

    Learn why analyzing banks' financial statements is very different from nonfinancial service companies. Review relevant examples ... Read Answer >>
  4. How are investment banks regulated in the United States?

    Read about the extensive regulations placed on investment banks in the United States, beginning with the Glass-Steagall Act ... Read Answer >>
  5. What is the difference between an investment and a retail bank?

    Learn the primary differences between retail banks and investment banks by examining the business activities, type of clients ... Read Answer >>
Hot Definitions
  1. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  2. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  5. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
  6. Ratio Analysis

    A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.
Trading Center