What is RegTech?
After the financial crisis of 2008, the situation of the financial institutions in Europe was miserable. The so called bubble had busted, making everything go down with high-interest rates, inflation, and no regulations to keep the condition at a constant pace. To control the situation, various banking rules, anti-money laundering policies, financial directives, and terrorist financial reglementations were implemented both on the national and regional levels. This has increased the regulatory pressure on companies to follow these policies. Only in the three year period between 2009 and 2012, over 50,000 regulations were implemented across G20.
The financial crisis gave birth to a revolutionary IT dynamic, which later came to existence as RegTech Solutions. RegTech solutions offer the support to financial institutes (FIs) to compliances, gaining support from regulators and investors.
Before these solutions were designed, the process of creating regulations and implementing them was a hassle and costly. According to Regtech Council (1), it took 30,000 pages and around 1.5 million paragraphs to describe the rules in MiFID II. The entire process costs around €2.5bn to implement the new regulations. Having such a costly and hassle-filled process led to the need to create an automated financial solution.
Realizing the need, a wave of startups has emerged, offering the technological solution to companies that efficiently and cost-effectively manage the overload of compliance. These new startups or “RegTech” companies are a mostly young organization that offers SaaS cloud-based solutions to bring agility, speed, integration, and analytics to meet regulatory expectations and manage risks.
As per the report from Juniper Research the total spending on Regtech industry will grow by an average of 48% per annum. Over the next five years, the investment will rise from $10.6 billion in 2017 to $76.3 billion in 2022.
Let’s have a detailed introduction to RegTech and see what this technology is all about.
What are RegTech Solutions?
RegTech is a Regulatory Technology designed to improve the way businesses manage regulatory compliance. It consists of a group of companies using cloud computing technology through SaaS to help businesses comply with regulations efficiently and less expensively. The main functions of RegTech are to perform regulatory monitoring, reporting, and compliance.
Why are RegTech Solutions Important?
By combining the ultra-advanced technology of machine-learning technology, RegTech reduces the risk to a company’s compliance department by offering data on money laundering activities conducted online. All the activities that a traditional compliance team may not be privy to due to the increase of underground marketplaces online.
It helps the companies to lift some burden from their Risk and Compliance teams as the regulatory landscape is moving at a superhuman pace. Do you know that in Europe, a new regulation is passed every 7 minutes? The change in regulation has reached almost 500% in the last decade.
When RegTech was introduced in the financial sector, it was welcomed with a healthy dose of skepticism. The basic concern of investors at that time was the margin of error. Knowing that the world of regulatory compliance is vast and complex, and the chances of error are massive.
What Services RegTech Solutions Offer to Companies?
It has only been a few years since the industry has emerged. The growth and popularity of RegTech solutions are exponentially growing every day. New features are being introduced with every passing day to improve regulatory compliance.
Here we are listing some of the very basic functions a RegTech solution offers to FIs.
- Data management solutions
- KYC (Know Your Customer) and AML (Anti-Money Laundering) solutions
- Tax management solutions
- Risk management solutions
- Records management solutions
- Trade monitoring solutions
- Reporting solutions
- Portfolio risk management solutions
- Quantitative analysis solutions
- Solutions that help companies manage a specific regulation (like GDPR)
- Regulatory change management solutions
Why Does RegTech Solution Matters for FIs?
Every business in any region of the world has the freedom to generate real value and profits, but only if meeting the law and regulations. Many times, protecting the consumers, businesses overpass the regulations.
Thousands of new regulations and compliance police have been passed and amended in the last decade. Keeping up with these regulations and policies seems an inhuman task. With RegTech, it becomes a lot easier for businesses to comply, unlocking both opportunity and wealth without compromising on consumer interests.
Just imagine the criticality of compliances, if not meet within the limitation set by authorities. Many banks have paid millions as a penalty for not meeting the regulations in Europe. In the world of regulations, laws are written on computers but followed by post-it notes and excel sheets. This juxtaposition is unsustainable.
Hiring, training, and maintaining a department costs millions every month to FIs. But with RegTech, the cost has reduced to only a few thousand, making it a better world for everyone.
Do you want to create your own RegTech solution? Our experienced team will be happy to help you!
How RegTech can help Financial Services
Let’s discuss the functionality of RegTech and how it benefits an FIs in detail.
Keeping Financial Services Regulators Happy
The EU is trying really hard to keep a balance in their Financial Sector for which they need to create and implement regulations and compliance policies. In this regard, many countries included in the EU have amended their laws and regulation and keep doing so.
As mentioned earlier, every 7 minutes, a new regulation is passed in Europe, making it inhumane to keep up with the pace. If a business is operating internationally and outside Europe, having knowledge of each regulation is essential. A RegTech solution makes it very easy for businesses to keep themselves updated regarding changing regulations and compliance policies. And, when businesses are following compliance policies, it makes the financial service regulators happy.
Lowering Costs for Financial Services
The cost of complying with complex and rapidly-changing regulations across multiple jurisdictions effectively amounts to an 8% tax on every firm doing business in the financial space.
The situation is even worse for Global Banks as they need to compete in a tough global marketplace where their regulatory responsibilities increased exponentially. On average, a large financial institute spends around $10,000 per employee to manage legal and regulatory risk. And, when it comes to managing complex challenges of MRAs and MOUs can even cost major banks upwards of $1 million apiece. Clearly, it is too expensive to keep doing business in this way.
With a RegTech, the cost reduces to a great extent making it a lot easier to keep your business in accordance with regulations and compliance policies.
The major component of a RegTech is SaaS, cloud computing, Big Data, and most advanced technology of Biometric. Combining machine-learning and the use of advanced technology makes it easier for FIs to implement Artificial Intelligence in their operation, and the biggest example of it is RegTech.
RegTech Allows to Identify Users by Biometrics
Biometric is the most advanced technology to identify a person on his/her own individuality. Biometric offers a more user-friendly and secure option for authentication. Thanks to RegTech, now banks can verify consumers using Biometric technology. The integration of Biometric technology has reduced the risk of money-laundering and frauds to a great extent.
What are Some Areas of Application for RegTech?
Let’s get to know the important areas of application for RegTech.
- Big Data
RegTech companies are running the application based on Big Data to analyze consumer identification. It is one of the main components of RegTech solutions.
- Cybersecurity
Data breaches and online fraud are most common since technology has evolved and took over the financial sector. RegTech using advanced technology helps prevent these breaches by using strong encryption and end-to-end anonymity over the system.
- Macroprudential Policy
Like all other regulations, RegTech helps FIs to strictly follow Macroprudential Policies. These policies are created to ensure the stability of the financial system as a whole. It prevents the system from substantial disruptions in credit and other financial services.
- Identity Management
Having knowledge of the customer and specific regulations to prevent money laundering and the financing of terrorism is very important. Using Artificial Intelligence or Business Intelligence (BI) technology helps RegTech companies to improve the overall identity management of the system.
- Risk Management
RegTech helps FIs by automatic identification and management of risk sources by analyzing the patterns and management of large volumes of information. It controls the overall risk involved in these activities.
- Compliance
RegTech manages the overall compliance of a company by conducting automatic monitoring of the company’s compliance with policies and procedures. It keeps the compliance intact with different applicable laws and regulations, from customer protection procedures to tax and commercial aspects.
- Regulatory Update
The biggest functional area of RegTech is the identification and interpretation of regulatory changes and analysis of their impact on the company.
- Analysis and Reporting
It performs advanced analysis of large volumes of data using an automatic generation of communications to different authorities.
Top 25 RegTech Companies in Europe
We have created a list of top 25 European RegTech companies and some of their basic details. Let’s have a look:
Alyne
Location: Germany Domain: Cybersecurity, Risk management
Website: www.alyne.com/en
Speciality:
- Offers extensive control set templates
- Delivers mapped Laws and regulations
Blinking
Location: Serbia
Domain: Onboarding process, tools and controls
Website: https://blinking.id
Speciality:
- Offers digital identification of users
- Delivers digital onboarding process
- Offers Blockchain based document management system
CleverSoft
Location: Benelux & Germany
Domain: Onboarding process, reporting systems
Websie: www.clever-soft.com
Speciality:
- Offers optimizing regulation documents, marketing materials
- Optimizes commission payments
ComplyAdvantage
Location: Romania
Domain: Cybersecurity
Website: https://complyadvantage.com
Speciality:
- Offers compliance solutions
- Delivers transaction monitoring
- Offers payment screening
Corlytics
Location: UK & Ireland
Domain: Risk management, Compliance management
Website: www.corlytics.com
Speciality:
- Offers Taxonomy mapping
- Offers Advisory services
- Offers Risk management solutions that allows to plan investments
CyNation
Location: UK & Netherlands
Domain: Cybersecurity, Risk management
Website: www.cynation.com
Speciality:
- Offers analytics powered by AI and machine learning
- Offers automated vulnerability and assessment solutions
DataGuard
Location: Germany
Domain: CyberSecurity
Website: https://www.dataguard.com
Speciality:
- Supports with GDPR in companies
- It offers solutions to many businesses
Dathena
Location: Switzerland & France
Domain: Cyber security, Information risk
Website: www.dathena.io
Speciality:
- Offers Data classification solutions
- Offers Cloud access security
- Delivers data access monitoring
ElectronicId
Location: Spain
Domain: Onboarding process
Website: www.electronicid.eu
Speciality:
- Delivers video verification
- Delivers Face verification
- Delivers Signature solution
FacePhi
Location: Spain
Domain: Facial Recognition, Mobile biometrics
Website: https://www.facephi.com
Speciality:
- Delivers VoicePrint solutions
- Delivers eye biometrics solution
- Deliver facial recognition solutions
Fenergo
Location: Ireland
Domain: Risk Management, Onboarding Verification
Website: https://www.fenergo.com/
Speciality:
- Client risk rating
- Anti-money laundering
- Automated client orchestration
4STOP
Location: Germany
Domain: Onboarding Verification , CyberSecurity
Website: https://4stop.com/
Speciality:
- Delivers Document verification
- KYC services
- Anti-fraud systems
Governance
Location: Luxembourg & Netherlands
Domain: Onboarding, Monitoring, Reporting
Website: https://www.governance.com
Speciality:
- Procedures management solutions
- Business continuity management solutions
- Fund management solutions
Hawk:AI
Location: Germany
Domain: Onboarding, Monitoring Detection
Website: https://hawk.ai/en
Speciality:
- Crime pattern detection solution
- Real time transaction monitoring
- Audit proof AI explainability
IDpal
Location: Ireland
Domain: Onboarding
Website: https://www.id-pal.com/
Speciality:
- User identification solution
- User friendly experience
- Easy API integration
Privitar
Location: UK & Poland
Domain: Cybersecurity
Website: https://www.privitar.com
Speciality:
- Anti-money laundering
- Regulatory compliance solution
- Data sovereignty
RegBot
Location: Spain, Ireland & UK
Domain: Regulatory compliance, cybersecurity
Website: https://www.regbot.net/
Speciality:
- Delivers complete services to end user
- Delivers client protecting bots during compliance process
Kompany
Location: Austria
Domain: Onboarding process, monitoring process
Website: https://www.kompany.com/
Speciality:
- Automate compliance process
- Instant access to verified companies data
- Access through web tool or REST API
Onfidio
Location: Portugal
Domain: Onboarding process, cybersecurity
Website: https://onfido.com/
Speciality:
- Document verification
- Biometric verification
- Authentication
LUXHUB
Location: Luxembourg
Domain: Process & Control Tools
Website: https://www.luxhub.com/
Speciality:
- Offers Compliance API
- LuxHub ONE integrates financial services with one API
Muinmos
Location: Denmark
Domain: Regulatory compliance
Website: https://muinmos.com
Speciality:
- Enables client categorization
- Enables compliant cross border and third country selling
AQMetrics
Location: Offices in EU
Domain: Risk management, Regulatory compliance
Website: https://www.aqmetrics.com
Speciality:
- Tracking investors activity
- Receiving risk alerts and notifications of compliance breaches
New Banking Identity
Location: Denmark
Domain: Onboarding process
Website: https://newbanking.com/business/
Speciality:
- Protecting and controlling your personal data
- Client are the owners of their data
ForcePoint
Location: Offices in EU
Domain: CyberSecurity
Website: https://www.forcepoint.com
Speciality:
- Provides cloud security solutions
- Data security solutions
- Network security solutions
- Company provides services to many governments
ScaledRisk
Location: France
Domain: Onboarding process, Risk management
Website: https://www.scaledrisk.com
Speciality:
- Delivers multi-criteria analysis of performance and risk
- Track assets under management and performance day-by-day
Summary
RegTech’s popularity and familiarity are in subverting this dichotomy. It helps create a world where it is easier for businesses to comply, unlocking both opportunity and business value without compromising consumer protection, creating a better world for everyone. If you are running a business in the financial sector and want to comply with regulations, you should consider implementing Regtech in your company. To get better guidance, you can always contact experts at Selleo.
