What are the regulatory technologies that will shape the future?


Over the course of the last decade, regulatory technology has gone from a complete unknown to a key part of a company’s regulatory and compliance toolkit. As we look towards the future, what technologies in this space will stand out?

With a growing market presence year-on-year, RegTech looks to be a sector hugely on the up. Recent research has stated that RegTech is set to have a valuation of $28.33bn by 2027 – and with more companies than ever turning to regulatory technology solutions, the need for industries to understand the key technologies of the sector is imperative.

In the opinion of Joseph Twigg – CEO of Aveni – with regulation evolving, companies must prepare for this.

He said, “Regulation is evolving, as it must, to embed the most effective oversight and insight of information, outputs and services which are available and demonstrable. Regardless of the sector, the capacity to demonstrate effective compliance will mean the generation of significantly more data for companies. This data must be addressed robustly, analysed and reported appropriately and comprehensively.”

Twigg said that this requires technology that is ‘smart enough to address all of these challenges, but simple enough to use and install’. He adds, however, that technology is not the panacea to reducing regulatory complexity or data demands, “The importance of human interaction, analysis and interpretation, as well as customer service, is absolutely fundamental. Technologies that combine both the smart digital technology, as well the human interpretation will be pivotal for the RegTech industry of the future.”

Another key technology that will play a huge role in the future of RegTech is machine learning. Twigg remarks, “Machine learning will fundamentally transform human centred advice, automating the inputs and outputs of each step of the advice journey, such as in financial advisory services, allowing humans to focus on their strengths; being human and building relationships.

“Data-driven automation will allow scale that is out of reach to incumbent operating models, with advisers able to deliver improved service to significantly more clients at the same time as materially reducing the administrative burden with each advice case. That will fundamentally shift how regulatory compliance is set and equally achieved.”

A significant advantage for companies, Twigg believes, will be found by regulated industries who adopt operating models designed for the consumption and processing of data. He added that lightweight, cloud-based hybrid advice that consistently captures data at every stage of the process, has clear automated journeys through digital-only, video conferencing and face-to-face – powered by technologies like NLP and machine learning – will drive significant scalability into regulated advisor and consultancy processes.

RegTech 3.0

As the regulatory landscape evolves with new digital trends, many RegTech firms will need to move with the current. Jonathan Hall – MAP FinTech regulatory analyst – highlighted that RegTech providers will be called upon to prove multipronged solutions on data analytics for amongst other things, the purposes of identifying suitable products for particular market segments by ingesting client preferences and analysing them using AI or suitable statistical models using big data.

Hall continued, “RegTech providers will provide the backbone of the next phase in the evolution of the financial system by creating solutions that will fully digitalise the financial system, such as wholesale banking being done by using paper trails ranging from signing and exchanging bilateral agreements, paper confirmations etc. There are efforts to render said paper trail by developing sophisticated platforms such as JP Morgan’s Onyx Platform, which is a peer-to-peer platform.”

On the topic of combatting money laundering and terrorist financing, Hall said that RegTech providers are at the ‘forefront’ of compliance and are creating novel tools such as biometric verification of customers’ identities and connecting to beneficial ownership registries to provide a fast and secure method of reducing AML-CTF risk.

Hall added, “Cloud-based RegTech solutions, powered by emerging technologies, will continue to play a significant role that goes beyond automation, offering advanced cognitive computing (AI), adaptive algorithms, and predictive analytics with deep machine learning for interpreting new regulations and near real-time reporting.

“With the future ever more likely to be driven by regulators wishing to improve supervisory capacity, RegTech 3.0, as the term is coined, will fulfil the pursuit of a regulatory framework for the digital age and with that, clarity and efficiency into the way in which regulation is interpreted, how compliance is managed and most of all how reporting is and will be automated.”

Compliance leader challenges

With evolving regulations and challenges, the ability to stay fully compliant can sometimes seem like an uphill battle. One of the biggest challenges here lies for compliance officers, who are facing a bigger and bigger workload without the resources to manage it.

ACA Group RegTech director Marc Salter said, “Compliance leaders are at the center of a transformational time in regulatory compliance and risk management. Once thought of as a cost center, compliance is increasingly seen as an asset that can drive business growth. These firms know that compliance is no longer just a tick-the-box exercise to satisfy the regulators—it can also win and retain business.

“However, challenges remain. Many compliance officers struggle with how to best support their firm’s growth while facing the mandate to do more with less. As companies rely on technology to conduct business more than ever, risks around insider trading, electronic communications and cybersecurity are increasing in volume and complexity. Compliance officers have to not only adjust the scope of their oversight, but also their techniques for conducting that oversight. “

Due to these trials, many compliance leaders are turning to technology for help. According to research from Thomson Reuters, 49% of survey respondents said they are considering RegTech solutions to manage compliance, which was a 34% increase since their 2021 report.

Salter said, “As cost and regulatory pressures increase, compliance officers are under even more pressure to finding ways to track and monitor compliance activities across the firm from one place, eliminate tedious manual tasks through automation and/or outsourcing, and feel confident that their compliance data is consistent, reliable, and secure.

“If these challenges are sounding familiar, the ideal solution is regulatory technology When is implemented thoughtfully and strategically, compliance officers can spend their time where it’s truly needed.

Scalable and flexible 

In a future where the need to be open and flexible is more important than ever, RegTech will also have to meet this task.

Muinmos CEO Remonda Kirketerp-Møller detailed, “The RegTech firms which will shape the future are those which are scalable, automated, have cross-border capabilities, and are specialists in multiple functions. The current market is very fragmented, with many RegTech firms just focused on their local jurisdiction or one aspect of RegTech such as KYC/AML or transactional reporting. These firms just won’t be able to survive as the market evolves.

“Financial institutions don’t want to work with six or seven different vendors to meet their requirements – which is often the current situation. This isn’t fit for purpose as it is over-complicated to manage, and the different solutions are often not easily integrated together.

“Financial institutions looking for future-proof solutions now be looking for a single vendor for functions which logically fit together. Muinmos is an ideal example of this approach, having developed the only client onboarding platform in the global market to fully automate the entire client onboarding process, from AI-powered client categorization to fully automated KYC/AML checks and client risk assessments.

“We are increasingly seeing through RFPs that the market is looking for a single provider that can tick all their boxes. This just isn’t feasible and RegTech firms need to cautious when responding to these. They shouldn’t just bolt on solutions from third parties in order to tick the boxes that they offer full coverage. This will backfire for them and they will ultimately lose their clients. Financial institutions need to partner with firms who are experts in their fields and cover multiple requirements within a single solution.”

Other developments

With new technologies springing up across the sector, it is an exciting time to be in the RegTech industry right now. What other technologies should we watch out for?

Gion-Andri Büsser – CEO of IMTF – outlined three key areas which deserve increased focus going forward.

He said, “The first area is intelligent process automation. Given that still the majority of compliance cost originates from manual processing, improvements in the process space can significantly increase efficiencies and reduce costs. ML and other new developments in the space can help increase the advances even further and deduce behavioural effects.”

The second area Büsser outlined was data aggregation and data sharing, “Data aggregation is key to better KYC processes and more importantly an improved view on client risk. This allows not only to better identify real threats but also reduce unnecessary, non-risky review processes.”

The final area is platform development. He concluded, “Thinking about financial risk solutions from a platform perspective allows to build-out new use cases quickly and integrate third-party sources at (almost) zero cost.”

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