Regulatory Technology, more commonly known as RegTech, is defined as the use of new technologies for helping financial institutions effectively meet regulatory requirements of reporting, monitoring, compliance and risk management. RegTechs is often confused with FinTech but the latter is defined as using technology for delivering financial solutions. Unlike FinTech, RegTechs focuses more on rethinking the way finance and regulation work. RegTechs provides cost effective solutions to financial firms for meeting regulatory requirements through automation and digitization.
Why is RegTech Important?
Post global financial crisis of 2008, the regulatory requirements have become more complex and stringent. Also, hefty penalties and fines are imposed for failing to maintain compliance. This has also led to an increase in the annual spending by financial institutions on regulatory compliance. Consequently, the cost of compliance has become a major concern in banking and finance industry. RegTechs offers cost effective solutions for meeting regulatory obligations. Technology firms can help financial institutions in collecting data and generating reports for various regulatory bodies. And regulators can strengthen their supervisory capacity through RegTechs by using the data efficiently and monitoring latest industry trends and developments.
The future of RegTech
RegTech is emerging as an efficient tool for improving regulatory procedures through digitization and automation. And, it has also been perceived as a transformative tool that has the potential to revolutionize the finance industry. It can help in the development of new procedures using the available regulatory database. The combination of robust technology and a data driven approach can also help in problem identification and solving.
RegTech solutions need to be integrated into existing internal IT systems. Additionally the solutions must serve multiple disciplines like risk management, treasury management, supervisory reporting, corporate governance etc. Although RegTechs still isn’t fully developed, it is surely a promising discipline. A number of startups have begun working on it and are trying to develop themselves as RegTechs ecosystem hotspots. Many emerging economies are also working strategically to develop their Reg Tech sector. Further development of Reg Tech depends on how well this evolving ecosystem integrates with the finance industry. It also requires collaboration of regulators and stakeholders. A number of regulators are starting to update their monitoring systems with Reg Tech to improve the process of information gathering.
Potential of RegTech
RegTech solutions are mostly cloud-based, meaning the data is stored, managed and backed-up remotely. This leads to increased flexibility for accessing, controlling and sharing of data, in addition to reduced cost. Using big data the numbers can be converted into intelligence which can be further used to improve transparency, visibility and risk management in various financial aspects. RegTech can form an excellent means of leveraging innovation in banks and financial institutions and aligning it with corporate strategies.