Stay Compliant With RegTech

“Learn from your mistakes” is a common phrase we use in daily life. Yet wouldn’t it be cool if we had a watchful guardian who could tell us before we committed a mistake? Well, if you think that’s fiction, think again!

RegTech, or Regulatory Technology, is a relatively emerging field of technology that’s aimed at solving this age-old problem. RegTech refers to a collection of technologies, processes and practices that can help businesses reduce the complexity associated with various aspects of regulation. Businesses can adopt this new-age solution to stay compliant with regulations – be it industrial, legal or of any other
kind.

If you feel your compliance can be complex and challenging, RegTech is what you need. This blog will help you learn all about RegTech; its evolution, working, types and potential benefits to your business!
 

Let’s Understand RegTech

Regulatory Technology, or RegTech as the cool kids say, is an innovative concept that uses automation, Machine Learning, data analytics and other advanced technologies to simplify the process of regulatory compliance. It enables organizations to reduce manual data processing, improve compliance and eliminate risks due to non-compliance. Through the use of innovative technologies, RegTech provides organizations with the necessary tools to stay compliant in this ever-evolving regulatory environment.

RegTech is an extremely important concept for businesses as it helps them reduce expenses, improve efficiency and eliminate regulatory risks. Let’s learn more about RegTech!
 

Evolution And Origins Of RegTech

The oldest set of regulations is the Code of Hammurabi; a collection of 282 rules for commercial interactions that defined fines and punishments to uphold justice. The legal text is thought to have been composed between 1755–1750 BC.

Don’t worry; this is not a history lesson – just to say that rules and regulations have been around for a long time. Here’s how RegTech evolved in that context:
 

• The banking collapse of 2008 sparked a historically significant shift from under-regulation to broad regulatory interventions by governments and regulatory bodies.

• Most notable was the Dodd-Frank Act introduced in July 2010. It required businesses to follow over 400 new rules and mandates!

• Since the 2008–2009 global financial crisis, the volume of regulatory changes had seen a major increase – in some industries by 500%! Due to the rising pressure, financial institutions and businesses rushed to implement the new requirements into internal processes and train their staff accordingly.

• As a result, the early 2010s saw an explosive uptake of digital solutions by businesses, particularly ones using deep learning and neural networks to simplify regulatory texts.

• It took a few more years for these technologies to be fully integrated into compliance solutions that had emerged to reduce regulatory complexity and offer effective process automation.

• In the early 2020s, the regulatory compliance industry went from a mishmash of third-party tools and solutions to an optimized system that we now call RegTech.

Today, RegTech has become a critical aspect for every business to implement and manage. Yet, being an emerging field, many business leaders ask: how does RegTech work?

That’s up next – read on!
 

How Does RegTech Work?

RegTech unifies many technologies under its umbrella (see what we did there?). It primarily uses cloud computing to deliver solutions on a Software-as-a-service (SaaS) model which enables businesses to access RegTech solutions and tools inexpensively on-demand.

RegTech solutions providers collaborate with institutions, businesses and startups as well as regulatory bodies to bridge the information gap. Most RegTech solutions leverage cloud computing, big data analytics and Artificial Intelligence (AI)/ Machine Learning (ML) to process, analyze and share regulatory information to businesses. This is especially common in emerging niches and industries.

For example, a crypto exchange may procure massive amounts of data that could be too complex, expensive and time-consuming for them to analyze. This is where a RegTech provider can step in like a suave surfboard-wielding lifeguard!


RegTech combines various technologies that can help the business stay compliant:

• Big Data can manage and organize huge datasets.

• Machine Learning can analyze complex information and find trends, make predictions and detect fraud.

• Data Analytics can generate actionable insights that can tell the business where to focus.

• Blockchain can securely store sensitive business and customer information.

Through this approach, a business can successfully comply with industry regulations and protect its interests. It also streamlines the auditing process as compliance is ensured at each step. Moreover, the RegTech suite of technologies saves time spent on manual processes, reduces operational expenses and eliminates remediation costs.

This helps the business effectively comply with regulations set out by various authorities. Now, let’s explore the many facets of RegTech – surf up!
 

Types Of RegTech

Risks come in various shapes and sizes. Hence, it is only natural that there are a few types of RegTech solutions, including:
 

• Risk Management

  RegTech with a risk-focused approach reveals weaknesses in internal processes and potential regulatory issues. It enables businesses to prevent potentially harmful behavior before it has any permanent effect.

• Transaction Monitoring And Reporting

  As RegTech solutions collect and monitor transactional data, AI/ ML can be used to identify potentially harmful or non-compliant transactions. This type of Regulatory Technology extensively applies to fraud detection and AML (Anti-Money Laundering).

• Customer Identification

  The identification of customers is crucial for ensuring compliance with data privacy laws. The development of these RegTech solutions has been influenced by KYC (Know Your Customer) laws. This type of RegTech solution addresses compliance with KYC rules.

• Regulatory Intelligence

  This RegTech solution addresses the requirement that businesses stay current on the relevant legal and regulatory developments. Ensuring that a business can adjust and adapt to changing regulations and laws is essential in the modern age.

With that, we’ve come to the section you have been waiting for – the advantages of RegTech!
 

Benefits Of RegTech

No matter the industry, it is imperative to be on the safe side of legal, industrial and environmental regulations and mandates. RegTech makes it easier for businesses to not just comply with rules but also eliminate potential violations and pitfalls. The benefits of RegTech include:
 

• Improved Efficiency

  New laws are passed every day which means regulations can change in the blink of an eye. It's challenging to manually stay on top of these changes. However, with RegTech, it is possible to automatically interpret new legal requirements in real-time, process the insights and apply them within the organization.

• More Accurate Data

  Human mistakes can always happen during manual processes. Only Big Brother can have 100% accuracy in his work! For other mortals, RegTech can help achieve streamlined, automated, error-free reporting, which can increase the accuracy of data significantly.

• Enhanced Risk Management

  RegTech can be used to identify and assist in minimizing risks, including cyber-attacks, fraud and other irregularities. This improves compliance and enables businesses to react quickly to security and legal issues, leading to better risk management.

• Higher Trust And Transparency

  Big Brother says a company's success depends on whether customers trust it. By implementing the appropriate RegTech practices, businesses can conform to rules, align internal procedures and protect client data and assets, all of which can build consumer trust.

• Long-term Savings

  Investing in RegTech could seem expensive at first but it ultimately saves institutions money, effort and time. Implementing RegTech solutions can free up internal resources, enhance productivity, lower the risk of fines and spot non-compliance issues before they cause irreparable damage.

As we mentioned before, RegTech is a pretty new concept – which means constant updates, innovations and developments. Let’s take a look at what the future of RegTech has in store!
 

What’s The Future Of RegTech?

Big Brother will be watching in the future too – in a good way!

According to Allied Market Research, the global RegTech market is anticipated to expand at a compound annual growth rate (CAGR) of 23.5% from 2018 to 2025, reaching a valuation of $55.28 billion.

Artificial Intelligence and Machine Learning will become critical within the RegTech industry as they enable businesses to analyze massive datasets to detect anomalies, risks or fraud. Moreover, blockchain will see higher adoption and integration in RegTech solutions. The distributed ledger function will allow users to securely and transparently record business transactions. This will be particularly helpful for meeting Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements.

As businesses explore new territories with emerging technologies, staying compliant will be top of mind – and RegTech will be there to rescue the situation!
 

Conclusion

RegTech or Regulatory Technology leverages technology and innovative solutions to help businesses comply with evolving regulations efficiently and cost-effectively. Regulatory Technology is critical, no matter the industry or size of the business, as regulatory lapses and violations may occur in any business. RegTech ensures business play is fair and balances consumer safety with the business incentive to generate profit. We’re sure this invisible lifeguard will be watching the next time you dip your toes in uncharted waters!