The deep dive: Future of RegTech

By Puja Sharma

The deep dive’ is our bi-weekly exploration of a relevant topic, hot trend, or new product. For Prime subscribers only.

How does it work?

Businesses use RegTech (Regulatory Technology) to manage regulatory compliance more effectively. There are several benefits to RegTech solutions, including boosting a company’s efficiency and productivity, ensuring adequate accountability for operations, reforming risk management, detecting market abuse and non-compliant trades, managing employee trading programs, managing third-party cyber risk, streamlining marketing review workflows, and providing a centralised system for submitting regulatory documents.

Fraudulent activities have been a vital cause for this industry to flourish in recent times, the increasing need to automate regulatory compliance processes, and the rising need for faster transactions. In addition, the growing popularity of automated regulatory compliance and identity verification solutions by the online gaming industry and the increasing demand for risk & regulatory compliance solutions by the pharmaceutical industry provide significant growth opportunities for vendors operating in the global RegTech market. However, the complexities associated with the implementation of RegTech solutions pose a major challenge to the adoption of RegTech solutions.

Who is under the radar?

Businesses and supply chains worldwide were disrupted by the COVID-19 pandemic. This delayed the plans of several organizations to incorporate RegTech solutions, hampering the growth of the global RegTech market. However, the demand for digital transformation and regulatory compliance solutions is expected to stay elevated. The uncertainty regarding the possible length of lockdowns and supply chain disruptions made it an arduous task for market players to anticipate the resurgence in the RegTech industry. Thus, the crisis caused structural shifts that significantly affected this industry. After the pandemic, prominent RegTech providers leveraged a strong portfolio of solutions and enhanced their product capabilities. This consequently supported the RegTech market’s growth.

Here are some examples: The Wolters Kluwer Group (Netherlands) launched Version 9.4 of its integrated risk management platform. Collaboration and integration are enhanced, communication and mobility are streamlined, and an ID verification software developed by Trulioo Information Services Inc. (Canada) was launched in 2020.

Why does it matter now?

It is expected that by 2029, the RegTech Market will reach $23.6 billion growing at a CAGR of 16.5%, according to the report by meticulous research. The growing number of fraudulent activities, the increasing need for regulatory compliance processes to be automated, and the increasing need for faster transactions are driving the growth of the RegTech market. However, the high costs of solutions/dashboards restrain the growth of this market.

The traditional cross-border payment systems have been causing financial institutions and banks numerous problems in recent years, including extra processing fees, fraud risks, security breaches, and increasing failure points. Additionally, sending a global payment through established banking channels is a complex and multistep process due to the involvement of several intermediaries. To solve these issues, blockchain-based payment systems streamline the transaction process and store every transaction on a secure distributed ledger to provide a faster, safer, and cheaper payment method. Furthermore, the rising need for faster transactions is encouraging consumers to deploy solutions, thereby fueling the growth of the RegTech market.