Regtech: Evolution, Need and Advantages

30 September 2019 | 1780 Views | By Mint2Save

Regtech is the acronym for Regulatory Technology which signifies the formation of an entirely new field where the information technology sector is married off with the regulatory processes in the finance sector. It works under the fintech (Financial Technology), and it is said that the gaps in fintech are to be cemented by Regtech. With the digital market growing so high, data is passed on hands with a lot of insecurity, and thus the online or offline information is at a higher risk of getting tampered or stolen which may affect the brands or customers and overall this makes a loophole in the system. To overcome such issues, the solution that comes up with resembles the famous proverb, ‘Diamond cuts diamond’.

Regulatory mechanisms will continuously monitor the activities and will report immediately to any malfunction, thus an accurate decision-making process with precise results easy to work with. The complex regulatory algorithms are simplified with the system which does the entire task by itself. Now there’s no need to observe and keep a track on the functionality manually. The technology designed here is capable of handling tasks precisely, and it is an excellent way of handling automation-related companies.

Evolution of Regtech

Regtech is relatively in a nascent stage, when compared with the elaborate history of finance, statutory regulations and compliance. It’s evolution, unlike most areas in finance, has been rapid and this subset of fintech is one of the most banked upon technologies of the future.

Since the advent of digital currency, accompanied by welcome steps by digital / binary world, the need to facilitate tech-economy has been the thrust for several countries and MNCs. Agreeing upon the numerous benefits of digital banking / trading, a need to regulate, report and monitor the same has been equally catching attention of many.

The financial sector faced several problems in the year 2008 where the use of technology was disrupted, and thus it created issues in the industry which led to looking for a solution where the technology-driven gaps in the whole of the system are now under a monitoring system where the keep a record of any imbalance. This leads to a solution where the data privacy and usage are more confidential so the users do not have to face any data corruption or privacy-related usage. The safety measures taken formed itself to a regulatory mechanism system, and this gave birth to Regtech. The regulatory mechanism in the financial industry has led to more accurate and precise results and better outcomes beneficial to the firms. The growth of regtech is expected to rise at an exponentially increasing rate, and hence many companies have started to work with this technology-based operations where they provide solutions to the clients based on the requirements set by them. This is a highly necessary action, and it is better to give more importance and efficiency to these kind of problems. Now, regtech has caught its attention with central banks and financial cum regulatory authorities of several developing as well developed countries.

Need of Regtech

Before the world went digital with finance, all documentation related to credit, debt, mortgage creation etc., was extensively paper based. Signing more than a hundred documents for application, identity verification, credit information, assessment, mortgage creation, mortgage registration, legal works, valuation formalities, stamping, registration and several other complex yet necessitated processes took ages to complete. Post completion, there were hurdles in the form of audits, manual monitoring, inspection. These activities not only increased costs, but also created trust issues, often frustrating the lender, the customer and the regulator. Instances such as frauds, miscalculation of liabilities were not at all an easy catch. Fugitives in the world of finance used to roam freely and defrauded in the tunes of thousands and millions.

Further, transaction monitoring, anti money laundering, counter-terrorist funding regulations, existed in the white and there was no actual method to keep a track on them.

The finance sector grows manifolds every now and then. Now, that it is going digital and beyond, the rapid realization of tapping it within the reach of regulator, has been an issue of prime importance.

Decentralization of powers using technologies like blockchain, distributed ledgers, all participants are required to comply with the mutually agreed norms and prerequisites. With regtech, such norms can be converted to smart contracts. Thus, their fulfilment can be automatically assured with regtech.

Thus, there are undoubtedly many rules and regulations associated with it. The complex algorithms linked to them can be monotonous, and therefore a patterned solution is necessary and one of the most efficient solutions. The modernized way to solve the complex issues is accepted in a very positive way.

As of today, 1500+ companies are involved with Regtech which intends to provide solutions and assistance to the companies for their demands and complex problems. Strategies used by banks are ill-treated, and thus the data privacy, which is a very significant issue for the companies and customers gets tampered, and hence it is to be taken care. Regtech is considered to be the future of such firms, and thus they are considered to be a very rising technology to be raised by firms for their drawbacks and overcoming them.

Technologies that Support Regtech

As regtech is such an emerging and large technology-driven business, it requires the support of various Information technology techniques, and overall, they form the cloud of Regtech. Some notable tech involved with the formation of Regtech is as follows:-

Artificial intelligence
Blockchain
Big data
Machine learning
Virtualization
API
Data mining and analytics
Cloud computing

These various sectors have come up with a mechanism efficient enough to help the financial organizations which are going through tremendous improvement, but the privacy of the data is an effecting issue for the companies involved with it.

The technology that is formed at the final step uses these features in different aspects, and hence the techniques are strong enough to bear with the issues and work in accordance with the needs and areas that are meant to be taken care of.

Key Characteristics of Regtechs

While regtech, though being a subset of fintech, is a huge area with lot of explored as well as unexplored dimensions, there are a few characteristics that might be visible in almost all applications.

The components involved with Regtech are as follows:-

Agility – the data that is mixed up intermittently can be easily organized through ETL technologies (Extract Transfer Load).
Speed – is a crucial factor here as well. The reports are generated quickly and can be configured easily.
Integration – the solution is readily available within the stipulated timeframes.
Analytics – the technologies use analytic tools to intelligently hybrid the methods and can test the true potential of these services.

Perfect blends of these critical characteristics are what make the Regtech a commercial success for the customers and overcoming the drawbacks.

The concept of regtech is about monitoring the processes in the financial sectors. The main primary function involves monitor and report the activities and comply with the business requirements. There is a group of companies that work on cloud-based operations.

Advantages of Regtech

The fin-tech solutions are aimed at combining financial services with the updated technologies. However, in this type of problem, data privacy is at comparatively high risk and hence to overcome this type of drawbacks, the concept of Regtech came into existence. In this, the system continuously monitors the data and reports immediately if there happens to be an imbalance or problem in the system. The advantages of Regtech are as follows:-

Time reduction in client onboard.
Identify the fraud.
To fasten the data collection and analysis.
Adaption of new regulations faster.
Real time transaction monitoring.
Maintaining Global Standards of Banking / business.

These advantages are aimed to bridge the problems associated with the financial technology where the data is at high risk of getting stolen or used in the wrong way. This type of technique is highly used and adapted now a day and is at a comparatively high growth rate of success and rise.

Applications

It is a noteworthy point that a regtech business can’t collaborate with any financial firms as the need of every company is not the same hence a prior background check is necessary to avoid any unwanted troubles at the later part. Regtech operates in various parts of the financial sector and regulatory space. Some of the notable areas where this technology is highly beneficial are as follows:-

Training
Management information
Health check
Identity verification
Compliance verification tools
Transaction reporting
Legal gap issues
Transaction monitoring
Risk Management

This type of sector will work in different approaches that are used for the control and reporting of the financial-related technology-driven problems in the business models. But the same application may not work for a different business model as the requirements are personalized and hence, the theories may change depending upon the business client to be referred. Thus, one solution may work for firm A but may not work for firm B. A customized approach is therefore required for solving such issues where the monitoring and reporting of the data in a uniform way is to be done.

Companies Involved with Regtech

Various companies have occupied a significant position in the regtech sector by forming the great tools they’ve created. Just as varied regtech can be, there are several types of startups working out with regtech in some or other way. Some of the examples of such firms , that are causing ripples, are as below:-

IdentityMindGlobal
Suade
Silverfinch
Passfort
Fund recs
Trunomi

Wrapped up

Regtech, as the name suggests, is the acronym for regulation technology where the main aim is to bridge the gap created by financial technology. Regtech uses information technology techniques to form a system that checks on the economic data issues and problems of the companies, and by this, they help up the data privacy issues faced by a lot of firms. To overcome such issues, regtech continuously monitors the system and checks for any functionality error in the order.

Newer rising RegTech trends additionally offer an image of wherever it should be headed within the close to future. There area unit hefty opportunities for RegTech because it is anticipated that regulation can solely still increase with additional demand to manage information, reporting, and operational processes. Fund managers and banks also are staring at supporting and partnering with RegTech startups to handle the growing regulative and compliance demand in addition as assist in spreading adoption of RegTech solutions for payments and governance.

Further, as most RegTech technology based startups are cloud-based, it unveils additional possibilities for startups to supply these solutions, without having faced the barriers of entry and serve its applications to organizations round the world. Several trade oriented international organizations shall derive their essence of mutual trust through regtech companies only. The big picture, is the assumption, that RegTech can solely still grow round the world with fintech and business trends and therefore the have to be compelled to address the varied challenges that are addressed here.

The integration of different technologies, this system is a perfect personalized solution for the mistakes that were previously caused in the systems. There are four main characteristics of Regtech, which include agility, speed, integration, and analytics. There are various advantages like time management, proper client interaction, and identification of any fraud based on the operations. There are multiple applications based on the Regtech, but a noteworthy point is every firm requires its techniques, and hence, two companies may not rely on single methods. They expect their personalized solutions. There are even some notable institutes like trunomi, passfort, suade, fund recs, silverfinch, etc. which have worked tremendously based on the requirements of their clients and attained expected results.

We are heading towards a more challenging world where trust and transparency shall only be the sole carrier of business deals, transactions and transfers. Technologies like regtech are the much needed flashlights that guide us in this unexplored path. Untampered information, risk identification and management tools, transaction watchdogs, data warehouse management, shall derive their strength from the regtech ideas and startups based around it.