The rapidly-growing RegTech movement has allowed businesses to address their regulatory challenges while saving time and money. But there is more to it than that.

Financial institutions are by rights regarded as the cornerstone of the present-day economy. At the same time, though, they are under immense pressure to comply with multiple regulations and guarantee the safety and security of gigantic amounts of data, which is extremely hard to accomplish without specialized tools and solutions.

Luckily, technological advancements and digitization have paved the way for the regulatory technology (RegTech) movement that is set to introduce leading-edge ways of tackling regulatory challenges.

Check out this article to gain in-depth insights into the different types of RegTech solutions, their key features and capabilities, and the benefits RegTech offers.

What is regulatory technology (RegTech)?

RegTech manages regulatory processes and operations such as compliance, reporting, and monitoring by leveraging high-end technologies and tools, including big data, the cloud, API, biometrics, robotic process automation, artificial intelligence, machine learning, and blockchain.

With RegTech solutions, businesses can better understand and manage their risks, combat cybercrime, and keep abreast of new rules and regulations intended to deal with them. They can also create more value without replacing or updating their legacy systems while operating in compliance with the law.

Where is RegTech used?

Although RegTech is predominantly associated with the financial domain, it can also be applied in various industries, such as healthcare and insurance, where regulatory compliance and reporting are considered integral to internal processes.

Several industry leaders and senior executives have already pivoted towards RegTech and started exploring its potential. Notably, one report suggests that the size of the global RegTech market will reach $28.33 billion by 2027, growing at a CAGR of 22.3% from 2020 to 2027.

How did RegTech come to be and why use RegTech solutions?

Over the past ten years, companies in both the public and private sectors have had to deal with the ever-increasing costs associated with regulatory compliance and continually evolving, over-complicated regulations at national and international levels. Simultaneously, digitization has created new contexts and subjects that have yet to be adequately regulated.

All of these as well as other factors have resulted in businesses spending a great deal of money on consultants and professional services to help them cope with compliance demands. And this is the very reason why the regulatory technology movement came to be embraced on a global scale.

FinTech vs RegTech vs SupTech

It’s essential to be aware that RegTech is often confused with FinTech, which is a different concept.

The critical difference is that FinTech is about developing and providing advanced technologies and tools that make it possible to offer more effective financial services.

RegTech, on the other hand, implies implementing tech-powered solutions that help financial firms drive efficiency and sustainability in their regulatory compliance functions.

Apart from this, one needs to differentiate RegTech from SupTech. The latter focuses on facilitating the efficiency of supervisory authorities through the adoption of leading-edge technologies such as artificial intelligence and machine learning.

What are the benefits of RegTech solutions?

RegTech is not just a buzzword. It offers significant benefits, including greater efficiency and adaptability, better customer experience and increased trust, reduced operating risks and lower costs, and streamlined innovation and decision-making.

Let’s take a closer look at each of these advantages.

Greater efficiency and adaptability

Given the challenge of manually keeping pace with and applying new regulations and tracking existing updates, companies should consider embracing specialized RegTech tools. These can help swiftly process, parse, and use legal requirements for a company’s setup. It results in streamlined performance and better efficiency and allows businesses to focus on tasks with more excellent added value.

In addition, RegTech solutions minimize the amount of time needed to find and retrieve relevant information for executing compliance checks. They also empower executives to respond quickly to regulatory changes and speed up time to market.

Better customer experience and increased trust

Undeniably, the success of any business depends on the positive experience and trust of its consumers.

RegTech saves companies the trouble of having to ensure the safety of consumer data and assets. They help easily detect fraudulent activities and control customer identity while establishing smooth and trouble-free transaction experiences, building rapport with clients, and winning their trust.

Reduced operational risks and lower costs

RegTech offers businesses the chance to leverage specialized automated tools that can carry out repetitive, manual compliance operations, thus decreasing the likelihood of violations and human error. RegTech devices have even been reported as helping boost the accuracy of regulatory reporting by 47% while simplifying reporting for regulatory purposes.

Importantly, RegTech-enabled automation drives cost-effectiveness by eliminating the fixed costs of compliance over time and increasing the return of capital alongside all regulatory and compliance needs.

Streamlined innovation and decision-making

RegTech provides businesses with new opportunities to incorporate and experiment with sophisticated technologies within their core infrastructure. This way, senior executives can keep abreast of the latest tech trends and stay ahead of their competitors.

As well as this, RegTech offers better visibility and control of businesses’ internal data, thus enormously enhancing decision-making across the entire company.

What types of RegTech solutions are out there?

RegTech comprises many different categories of solutions, and it is challenging to name them all. However, according to Deloitte, there are five essential services that RegTech is focusing on. These include compliance, identity management, reporting, risk management, and transaction monitoring.

#1 Compliance

Regulatory compliance has been the basis of the RegTech industry and the most widely sought-after service.

RegTech providers leverage tools and technologies such as robotic process automation, AI, ML, biometrics, blockchain, and advanced analytics to deliver compliance services. This helps perform a myriad of compliance requirements, including keeping track of upcoming regulations and updates in existing ones, data visualization, and regulatory reporting.

#2 Identity management

Identity verification and control are vital to detect and stave off possible fraudulent activities. RegTech solutions, for their part, rely on the advances of blockchain, machine learning, big data, and biometric technology to enable secure and swift identity management.

RegTech is used to verify identities following regulatory requirements such as KYC, AML, and due diligence, performing other background checks and verifications, eliminating manual intervention, and making the entire process more efficient and effective.

#3 Reporting

Using artificial intelligence, big data analytics, and cloud technologies alongside automation tools, RegTech helps firms considerably reduce the time needed to produce reports and enables automated data distribution and regulatory reporting.

It also allows executives to comply with their regulatory obligations and smoothly gather, process, and submit internal information to the relevant authorities.

#4 Risk management

By combining big data consulting services and advances in AI development, RegTech helps businesses efficiently predict and manage potential risks. The power of big data and artificial intelligence allows RegTech solutions to quickly and effectively process and analyze large quantities of information and provide stakeholders with comprehensive insights.

With RegTech, it is also possible to establish real-time tracking to spot possible identity theft and money laundering and analyze suspicious activity, thereby empowering businesses to stay alert and be ready to take the necessary action.

#5 Transaction monitoring

In 2021, an estimated 71% of organizations were victims of payment fraud attacks or attempts. Such alarming statistics signal that robust transaction monitoring is badly needed to battle fraud and scams.

In this regard, companies will be better off if they opt for RegTech solutions that are predicated on blockchain and AI/ML technologies. These assist in preventing fraud and operational shortcomings and monitoring ongoing transactions to detect any signs of suspicious activity.

What does the future of RegTech solutions look like?

As new products and services are developed on a regular basis, it is certain that the RegTech sector will continue to evolve within FinTech and gain wider traction among all types of companies.

Essentially, it is being said that the industry is on the verge of RegTech 3.0, which is viewed as a breakthrough with the capability to transform the industry’s approach to compliance and create extra value.

If you are eager to discover how to apply RegTech in your business or want to deliver a software solution that will meet all regulatory requirements, reach out to our IT consulting team for help. With more than 17 years of experience in delivering custom software development solutions and business consulting, we know which path to take to lead you to success.

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