Regulatory Technology – commonly known as RegTech – refers to the use of technology to provide improved financial regulatory solutions. The need for regulatory solutions is acute: according to a report by Deloitte, regulatory fines over the past decade have exceeded $300 billion, and the cost of compliance is increasing every year.
As more and more companies implement the growing range of Fintech solutions, and financial services become more accessible to the general public, companies are finding it increasingly challenging to meet ever-more-stringent regulation levels. According to American Banker, US financial institutions alone spend more than $70 billion annually on compliance measures and that figure is expected to top $100 billion over the next few years. In fact, recent estimates assert that more than 10% of an average financial firm’s employees work in compliance. Considering these numbers, the recent growth of RegTech companies is anything but surprising.
Benefits of RegTech
RegTech companies have stepped into this space to provide nimble, configurable, easy to integrate, reliable, secure and cost-effective regulatory solutions in the areas of reporting, risk management, identity management and control, compliance, and transaction monitoring. RegTech aims to lower the costs involved in achieving compliance by streamlining the process via cutting-edge technology. The solutions can also help regulators who require the latest technologies in order to make better use of the information being generated by the industry.
Aside from rapid integration, the key differences between RegTech and traditional solutions are agility and flexibility. While traditional solutions were often customizable to a firm’s specific needs and systems, they were often incapable of integrating new regulations and configurations. RegTech has the agility to learn, support and assess new and emerging regulations. Additionally, since RegTech solutions are generally cloud-based, the company’s data is remotely backed up and maintained. This drives costs down and provides better data control and information security.
Solutions for Finance Companies
RegTech has already made a significant impact on the financial industry. RegTech solutions provide the ability to automatically check customer credit or verify customer identification while ensuring compliance with privacy regulations. There are solutions to ensure compliance with complex direct and indirect tax regulations. Thanks to RegTech, firms can screen potential customers and then use monitoring services to detect suspicious behavior. Other solutions enable the application of tight security measures inherent within traditional currency trading to be applied to the digital currency marketplace. Additionally, complicated surveillance and security measures that detect market abuse and insider trading can be automated while still ensuring that there is no breach of regulatory compliance. With regulators increasing efforts over the years to stamp out money laundering and other forms of criminal financing, RegTech offers crime-fighting solutions to track employee conversations over a wide range of communications platforms, including email, social platforms like Facebook and LinkedIn, and instant messaging applications like WhatsApp and Telegram Messenger.
Another major application where RegTech can support the financial sector is in the area of cyber-security. Given the recent worldwide attacks that have literally crippled enterprises around the globe, every financial group must protect themselves, their assets and their customer’s assets using the most advanced technology available. RegTech solutions address those challenges by supplying the most front-line and innovative cybersecurity technologies, but also ensuring that the companies stay abreast of the latest changes in industry regulations and are always within the bounds of compliance.
And should a company find itself inadvertently incompliant with a standard regulation? RegTech solutions can closely monitor and send notifications of compliance breaches so companies can quickly correct any oversights and reduce their risk.
Should all firms start investing in regulatory technology? The answer simply is yes. RegTech is definitely the future of regulatory assessment and control using advanced management automation. It promises to bring precision and discipline to a crucial issue within the financial sector that has traditionally been time-consuming and costly. Management would do well to embrace RegTech and make plans to implement it in the future.
If you’d like to learn more about how RegTech solutions can affect your tax compliance, VATBox can help. VATBox, an automated, enterprise-wide, cloud-based VAT recovery solution, has successfully streamlined the global VAT recovery process, providing businesses with unrivaled visibility, compliance, and data integrity, and ultimately boosting its bottom line. Let us show you how your company can thrive in today’s complex financial times. Request a free demo here.
Part 2 next week: Top RegTech Companies to Watch