The financial service sector is going
through some dramatic changes. New technologies create new opportunities for
financial crime and fraud. Combined with the ever-increasing volume of
regulations, the challenge of compliance is growing. However, meeting current
compliance standards means a more efficient, safer, and more cost-effective
provision of financial services. Due to record investments and the huge growth
of Fintech brands, traditional financial institutions are finding that they
have little choice but to shift their ways of protecting their business from
fines for non-compliance. Digital innovation is required to match the demands
of consumers, and Regulatory Technology (RegTech) is quickly becoming an
essential component of the financial service sectors. With all of the benefits
that emerging RegTech solutions promise, financial institutions need to start
looking forward if they want to protect their future.
Digital Transformation
As technology is being increasingly used
to improve both the compliance and the security of financial organizations, an
entirely new branch of financial technology (Fintech) has seen a high level of
growth. RegTech is being used to help those organizations maintain high levels
of trust in the services that they provide. The use of RegTech to provide
organizations with machine learning, AI-enabled and data-driven software
options that make the previously manual process of regulatory compliance
significantly easier. Rather than using in-house teams of compliance experts
that can make common mistakes and leave organizations vulnerable to fines, companies with a Regtech focus are now
providing those institutions and organizations with the tech tools needed to
grow, adapt, and change at the same rapid pace of those emerging RegTech
solutions.
RegTech
and its Growth
Financial organizations now have to deal
with an always-increasing number of regulatory changes. The combination of the
EU Payments Services Directive (PSD2), cryptocurrency, Open Banking, and GDPR
has lead to huge disruptions in the finance sector. As digitization continues
to increase and financial organizations continue to remain under close scrutiny
after the financial crisis of 2008, compliance is more important than ever before and more challenging to keep up with. The
agility of RegTech companies offers a way to tackle those regulations while
remaining safe at all times. The growth of RegTech companies is a direct
response to a shift in thinking for those incumbent financial institutions that
recognize the inadequacy of in-house manual processes and teams that are
relying on traditional ways of maintaining compliance.
There has been a rapid increase in
investments in RegTech, driven by increasing demand. This has been the investment
pattern since as early as 2013, but the growth has been staggering. Each year,
investment figures reach new heights, with an estimated $5billion being invested in RegTech startups since 2013, and 2019 continued that trend. Those investment figures are only going to
increase as the benefits of machine learning, automation, and artificial
intelligence continue to be proven. Despite social and political changes around
the world, the need for regulatory compliance remains paramount. And with the
advantages of new industry-disrupting tools and resources thanks to the RegTech
sector, growth seems set to continue.
Financial organizations are facing
disruption from a variety of directions, and that’s leading them to explore and
tackle new territories as they fight to avoid fines for non-compliance. Digital
innovation through regulatory technologies can only be beneficial to those
organizations that want to stay ahead of the competition and keep themselves
safe from fines, as well as from political, social, and economic shifts. As
cooperation between RegTech brands and financial institutions continues to
grow, RegTech startups are simply enabling financial service providers with the
tools they need to improve efficiency. As a sector that looks set to become a
major player in an increasingly digital world, RegTech is only going to grow.
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