What is RegTech?
As its name implies, RegTech is a combination of the terms "regulation" and "technology." It bridges the gap between technological tools and the emerging regulatory demands in the innovation processes of financial institutions.
In other words, RegTech represents a community of companies with a technological focus that aim to tackle the challenges posed by a global economy driven by technology and automation.
Where does it originate from?
According to Investopedia, its origins can be traced back to the 2008 financial crisis, which led to increased regulation within the financial sector. Concurrently, there was a significant rise in the use of technology and its implementation in FinTech companies.
The protection of consumer personal data online is a highly sensitive and concerning topic, particularly for regulatory bodies that continuously call for legislation regarding data privacy and its use.
This circumstance has given rise to the need for regulatory technology.
How does it function?
RegTech operates by automating repetitive tasks, monitoring transactions, risks, and real-time regulatory changes, generating reports, and alerting compliance staff to potentially fraudulent activities.
In other words, groups of companies utilize software to monitor online transactions in real-time, identifying issues or irregularities in digital payments.
According to Reciprocity, some of the technologies that enable RegTech are:
Application programming interfaces (APIs)
Significant reduction in costs and time spent
Provision of detailed and accurate information to supervisory bodies
Adaptability to new requirements through ongoing updates
Continuous evolution of standards makes it nearly impossible to keep up without the technology provided by RegTech
Is there a distinction between Fintech and RegTech?
Fintech refers to financial technology, while RegTech focuses on regulatory technology.
For RegTech consultation, several options are available:
RegTech 100, which publishes a list of 100 innovative RegTech companies and their market characteristics
Swisscom, in collaboration with e-foresight, provides a market overview of new Swiss RegTech companies in various sectors
Innovate Finance, an independent industry body representing and advancing the global Fintech community in the UK
According to Investopedia, some noteworthy applications and companies in the RegTech field include:
Reciprocity indicates that RegTech is also present in other areas beyond financial services, such as:
Government, legislative, and oversight bodies
Environmental, health, safety, and quality assurance
Supplier risk management
Identification and background checks
Information security and cybersecurity
Overall compliance management.