What is RegTech?

The term RegTech refers to a subset of FinTech companies or solutions combining technology and regulation. They help the big companies with Regulatory Compliance, optimising efficiency, reducing risks and improving user experience.

RegTechs mainly focus on speeding up analysis processes, improving data quality and generating significant reports for sending to regulators and using to improve the company’s making of key decisions.

RegTech companies are born to automate all processes arising from Regulatory Compliance. Many of these processes are semi-manual or done using obsolete and inefficient systems, entailing high economic cost and a great deal of dedicated staff. The RegTech therefore join forces with cutting-edge technologies like Artificial Intelligence, Machine Learning, Big Data, Business Intelligence or Blockchain technology, among others.

How did the RegTech come to be and what are their spheres of application?

The RegTech took shape after the last global financial crisis, at a moment of profound regulatory transformation, mainly in the financial industry, but also in the insurance and energy sectors.

In this respect, the regulated companies must not only meet the requirements of numerous regulatory authorities, but they must also deal with increasingly more demanding and restrictive regulations, with ever-shorter adaptation deadlines meaning that they have to process a growing volume of data to ensure Regulatory Compliance. The costs of compliance rocket and become one of the main problems for organisations which are also faced with the risk of non-compliance.

graph rising costs of Compliance

All of these factors facilitate the creation of an ecosystem favourable towards the RegTech who, in a short time, have become a fundamental pillar for both regulated companies and the actual regulators themselves.

The advances provided by the RegTech with the help of disruptive technologies such as Artificial Intelligence, Machine Learning, Big Data, Business Intelligence or Blockchain technology, are applicable to all areas in the spotlight of Regulatory Compliance.

This is the premise under which Windrose Compliance Suite was conceived. To help in areas such as: Anti-Money Laundering (ALERT), the mitigation and management of financial and reporting risks (RULE), the protection of investors through compliance with the MiFID II directive (RECORD), onboarding with facial recognition (SELF), etc.

Evolution and future of RegTech

While the RegTech trend is relatively new, in recent times the number of companies/start-ups developing solutions of this kind has risen considerably.

The following image shows the exponential growth rate of this sector.

graph RegTech companies founded

Despite all of these companies having regulation and technology as their common denominator, different areas of specialisation are appreciable. The BBVA in its report “RegTech, the new magic word in FinTech” distinguishes up to five main regulatory areas:

  • Identity management. An area concentrating regulations referring to knowledge of the customer and specific regulations to prevent money laundering and the financing of terrorism. All of which are regulations closely related to identity management and anti-fraud procedures. Artificial Intelligence or Business Intelligence (BI) technology is fundamental in this respect.
  • Risk management. Automatic identification and management of risk sources by means of analysing the patterns and management of large volumes of information.
  • Analysis and reporting. Advanced analysis of large volumes of data using Big Data technology and automatic generation of communications to different authorities.
  • Compliance. Automatic monitoring of the company’s compliance with policies and procedures and of the different applicable laws and regulations, from customer protection procedures to tax and commercial aspects.
  • Regulatory update. Identification and interpretation of regulatory changes and analysis of their impact on the organisation.