Recordkeeping, regulations and consolidation: the RegTech trends that stood out in 2023


In 2023, new technologies entered the market that brought new challenges for financial services firms to remain compliant, RegTech was given the opportunity to provide the solutions necessary to fix this issue. Whilst the industry may be still relatively unknown beyond the shores of finance, its importance cannot be understated.  

In this second-part of a two-part review of the RegTech trends that mattered this year, FinTech Global spoke to key industry players on topics such as recordkeeping, regulatory challenges, industry growth, risk and partnerships.

Despite Generative AI making a huge noise across the financial world this year, there were a number of other key trends that were highly noticeable in 2023. One particular trend that has stood out, and particularly been a challenge for financial firms, has been recordkeeping.

Stacey English, director of regulatory intelligence at Theta Lake, emphasised that the key trend of 2023 was the unremitting regulatory focus on recordkeeping and the persistent use of unmonitored communications channels.

She stated, “This year saw fines reach a staggering $2.6bn from US regulators with senior individuals also being sanctioned. Having seen the regulatory net being widened to include not only banks, but also brokers, investment advisers and credit rating agencies alongside a growing list of regulators taking enforcement action, including the UK’s PRA and energy regulator Ofgem, it’s no surprise that firms have turned to technology providers like Theta Lake to help solve their recordkeeping problems once and for all.”

In the view of English, it has been clear that the financial services industry has struggled to meet its recordkeeping obligations. She also remarked that the compliance pain and incompatibility with unified communications and collaboration (UCC) of existing archiving and recording tools is ‘all too real’ – with almost all (98%) of the 600+ senior leaders who took part in Theta lake’s independent research dissatisfied with their existing archives and voice recording tools.

“The fact that 68% of firms have been forced to disable core features across their approved platforms like Zoom, Microsoft Teams and Cisco Webex, because existing compliance tools can’t effectively capture them and/or make them searchable for detecting and reporting risks, has only served to exacerbate compliance issues,” said English.

She continued, “Not least, employees turning to unapproved and unmonitored channels like WhatsApp as alternative ways to effectively communicate with customers. Of particular concern is the 74% who said it’s likely their employees are using unmonitored communication channels, up from 66% in 2022. That’s alongside a diminished ROI from the collaboration tools they’ve invested in.”

This has led many companies throughout 2023 to turn to Theta Lake for modern compliance tools built for UCC platforms, English quipped. They are turning to them she states in order to address the challenges they face from having disparate compliance tools that specialize in traditional voice recording or originally built for email-based archives.

“Whether that’s the need to capture the context of communications such as emojis, reactions and edits, be able to instantly review communications that span video, voice, chat, whiteboards and file sharing or provide reconciliation to evidence that all records have been captured,” said English.

With this in mind, the Theta Lake director of regulatory intelligence highlighted that an effective approach to communications compliance is long overdue. In this respect, she claims it’s no surprise to hear firms are revisiting their approach to communications with almost half (48%) investing in specific communication compliance solutions and 40% having made communications compliance a board level topic. “As 2023 comes to a close, we can expect the issue to take centre stage in 2024,” she concluded.

Regulatory challenges

On a yearly basis, regulatory challenges are often one of the key trends that industry players will see as important – they are after all, the company’s bread-and-butter issue.

In 2023, in the view of MAPFinTech, in terms of collaboration financial institutions and RegTech firms joined forces to address specific regulatory challenges.

The firm said, “For instance, partnerships between banks and RegTech companies focused on developing solutions to navigate the complexities of new regulations, such as those related to sustainable finance or climate risk reporting. These collaborations resulted in tailor-made tools and platforms designed to meet industry-specific compliance needs while optimizing operational processes.”

Furthermore, the company highlighted that the evolving global regulatory landscape introduced complexities. It said, “Cross-border compliance requirements prompted RegTech companies to create adaptable solutions capable of addressing diverse regulatory frameworks. For instance, solutions that incorporated machine learning algorithms capable of learning and adapting to various regulatory requirements across jurisdictions gained significance.”

The firm concluded, “Overall, the RegTech industry in 2023 showcased innovative applications of AI, blockchain, and collaborative efforts between stakeholders to address regulatory challenges. Despite the progress, the industry remained vigilant in tackling unforeseen challenges, emphasising the need for ongoing innovation and adaptability in the dynamic regulatory environment.”

A key area of regulatory focus over the past few years has been the environmental, social and governance (ESG) space. Bodo Windmöller, product director at Regnology, noted that ESG has gained further momentum as a topic of banks and RegTech in 2023.

He explained, “In the EU, the European Banking Authority (EBA) published its final draft implementing technical standards (ITS) on Pillar 3 disclosures on ESG risks. The standards put forward comparable disclosures and Key Performance Indicators (KPIs), including a green asset ratio (GAR) and a banking book taxonomy alignment ratio (BTAR). Institutions need to embed sustainability considerations in their risk management, business models, and strategy.”

Windmöller also brought up the Corporate Sustainability Reporting Directive, which entered into force on January 5th this year. These new rules will ensure investors and other stakholders have access to the information needed to assess the impact of firms on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues.

He concluded, “2023 has been a year of growth and evolution for the RegTech industry, with a clear shift towards ESG considerations. The industry has risen to the challenge, providing a plethora of innovative solutions to meet the changing landscape of regulatory compliance, especially on the data side.

“However, the journey is far from over, and as institutions further focus on the implementation of ESG in 2024, valuable lessons will be drawn by all stakeholders. A clearer picture will emerge as to which solutions will add long-term value and where adaptation is needed.”

Vell Herard, CEO of Saifr, raised the proposed predictive analysis regulation by the Securities and Exchange Commission, which was raised in July this year. He stated, “While we don’t comment on pending regulations, we think that model risk management is a step in the right direction for companies specifically around the use to accurate quality data and the assumptions that go into the data that power these AI models.”

Another key industry thought leader who sees evolving regulatory obligations as a pressing matter is Encompass president for North America Alex Ford. She emphasised that regulatory pressure has been the ‘catalyst fuelling RegTech’s rapid rise’ – a market which is expected to account for 50% of global compliance budgets by 2026 – with obligations evolving throughout 2023 thanks to key issues such as the Russian sanctions situation.

She remarked succinctly, “As the landscape has moved, financial institutions have had to look for more innovative and efficient ways to meet their regulatory compliance obligations – enter RegTech.

In the opinion of Ford, one of the most challenging issues for FI’s to contend with is the number, frequency and complexity of regulatory updates across multiple jurisdictions. “It has become increasingly obvious that technology is ideally placed to solve this challenge, as RegTech solutions have been trusted to unpack various levels of complexity with the help of digital transformation,  improving compliance, efficiency and, ultimately, bottom line,” remarked Ford.

How RegTech is driving change

John Ogie Sheehy, founder and global CIO at RegTech firm ViClarity, also emphasised that with the ‘ever-increasing onslaught’ of new regulations, many firms are now looking for new ways to drive efficiencies in how they manage risk and compliance.

He said, “Looking back over 2023, I think the year was as I had expected it to be. More and more companies are interested in exploring how RegTech can bring them to the next level in their businesses. Technology has become that enabler for companies to do more with less dependency on staff and also to have a stronger emphasis on governance right up to the board level.

Sheehy also made clear that the sector is ensuring accountability for not just staff members but non-executive directors. This comes from the move of the Regulations around Fitness and Probity, SEAR and now the introduction of the IAF (Individual Accountability Framework) in Ireland under the CBI guidelines.

A watchword for many in the industry when it comes to RegTech is efficiency. With financial institutions searching fiercely to balance budgets and drive better cost and operational efficiency – RegTech is providing a very efficient answer.

Encompass’s Ford stated, “Keeping costs down while meeting regulators’ expectations is a top consideration for C-suite executives, while The RegTech Association’s annual Industry Perspectives Report 2022 also found that 44% of regulators believe deploying new technologies is critical to solving inefficiencies in processes – something that will only increase in importance as we move into 2024 and business grapple with their paths to profit.”

This topic segues into what is being seen as an ever-growing realisation in the financial services industry, which is that the need for RegTech is strong.

Ford explained, “Overall, the last year has shown that the need for a thriving RegTech industry, which encourages and supports global collaboration on the road to innovation, is stronger than ever. With RegTech serving as a catalyst for productivity and efficiency, while meeting compliance obligations, solutions are becoming an increasingly crucial component in business processes and strategies, which will be a key part of success in 2024 and beyond.”

Ford also underlined that earlier in 2023, it became apparently that the tech industry would have an increased focus on efficiency and paths to profitability. “While this was not necessarily a surprise, compared to funding strategies and growth levels in the preceding years, it was a significant change,” she stated.

With ongoing geopolitical uncertainty, Ford made the case for RegTech’s role, commenting, `The volume of new sanctions, the conflicts in Ukraine and Israel/Palestine have created a macro context where financial institutions are risk averse, however, need to be able to improve their ability to respond to rapid regulatory change – which, as mentioned before, is where RegTech can be crucial.”

The need for RegTech is clearly being seen in the financial industry. John Byrne, CEO and founder of Corlytics, emphasised that this year has shown RegTech is growing, with the market seeing a lot of consolidation in the market. Looking at the market, he stated it has been dominated by players providing point solutions whereas clients want automation solutions from start to finish – further emphasising the efficiency drive in RegTech.

He continued, “On the other hand, regulators have been demanding better outcomes and the better outcomes are coming from better automation and better management of the process end to end. That pressure from the regulator has been driving the need for bigger solutions that do more. For instance, the integration of Corlytics and Clausematch allows for a virtually real-time policy updates and automation starting from the moment a regulator issues an announcement.”

Likewise to Byrne’s comment, Corlytics president Evgeny Likhoded remarked, “We have seen a surge of buying activity in the RegTech market in 2023, RegTech has been growing because regulations are not getting easier and we have seen a very active consolidation going on. Point solutions are no longer sufficient to address regulatory concerns, integrated solutions are required as clients need all of the dots joined up. “

With parts of the FinTech market slowing down this year, Muinmos CEO Remonda Kirketerp-Møller noted that in such situations, financial firms often turn to RegTechs to boost their operational efficiency.

She said, “It was not an easy year on some FinTechs. Many of them used RegTechs to simplify processes and achieve better operational results, despite difficulties.”

In addition, Kirketerp-Møller stated another trend was found to be large consultancy firms that picked up the pace of creating strategic partnerships with RegTechs, understanding that they either incorporate them in their offerings or lose the battle to them.

Anthony Quinn, founder and CEO of Arctic Intelligence, also shined a light on the area of RegTechs supporting FinTechs with more ways to be efficient. He said, “2023 has been a good year for Arctic Intelligence and for RegTechs in general as there has been continued interest in the value, efficiencies and savings RegTech adoption can deliver.  There is also increasing support by industry bodies, regulators, regulated entities and advises to embrace or at least consider RegTech and this is a trend we see continuing.”

He also stated that the pace of innovation in the market is continuing, but regulated entities have very long and cumbersome buying processes, with some decisions taking up to 2-years, which Quinn highlighted has also slowed within the current global economic and geo-political climate with firms pausing, postponing or cancelling investment decisions, which he added is a challenge to navigate as ‘every second counts when you have limited resources’.

Expanding partnerships

A final trend picked up on this year in RegTech, in the view of HAWK:AI strategy VP Chris Caruana, are growing public private partnerships.

He said, “As we headed into 2023, the regulatory industry prioritized most of its discussion around growing public/private partnerships, scratching at the capabilities of federated learning (without privacy sacrifice), and the wider (potential) impact of artificial intelligence in regulation.

“While we’ve seen public/private partnerships steadily and quietly gain momentum (e.g. Singapore’s COSMIC, regional LENS programs with US banks and law enforcement), federated learning progress has slowed. Driving this slow-down is the explosion of artificial intelligence capabilities, particularly generative AI.”

Caruana mentioned that the RegTech industry has been – and continues to be – ‘forward leaning’ in its development and embrace of transformational technology. “The non-obvious challenge RegTechs face is they’re pushing generational change in an industry that fears change. In 2023, we saw the gulf widen between RegTech’s technical development and delivery capability, with proof points to significantly improve operational KPIs, and regulated institutional desire to adopt these technologies,” he said.

Other key areas Caruana emphasised included innovation and collaboration, “The gentle approach to innovation that regulated institutions welcome is automating historically mundane tasks.

“They feel comfortable getting the regulator onboard with this approach and, to their credit, we’re seeing regulators support automated decisioning (so long as there’s an audit trail) of straight-forward tasks.

“In addition, collaboration (between internal teams and public/private) continues at pace.  Again, regulators and law enforcement agencies are slowly warming to the practice and benefits realized by all parties involved.”

An ‘under the radar’ theme that’s quietly being advanced is the increased capabilities of predicting risk within current and future customer base, said Caruana.

“At HAWK: AI this is a critical focus of ours and, in discussing this with many of our peers across the industry, it’s an increasing ask of regulated institutions.  ‘How do we get better about predicting risk and, as such, reducing customer friction and improving customer experience, without compromising regulatory posture?’

“As I see it, 2023 has been a pivotal year for the RegTech industry. Between GenAI and the granular data transformation coming up, the RegTech space is rapidly transforming into a real-time world which will force many players to reinvent their solutions.”

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