RegTech: The Regulatory Spinoff of Fintech
Digital transformation has also been evident in the field of regulations. Just like fintech, RegTech could have different meanings for different users of emerging technology. The fundamentals of RegTech explained for beginners would paint the tool as an amalgamation of regulation and technology. However, the combination of regulation and technology has helped in resolving regulatory challenges with different levels of success. On the other hand, regulatory scrutiny has been increasing across different sectors with more emphasis on data and reporting.
RegTech has evolved as a major tool for emphasizing value creation for firms associated with data and reporting. Many organizations want to find answers to “What is the importance of RegTech in fintech?” and its differences with fintech. It is important to reflect on the notable RegTech solutions and their importance. Most important of all, it is important to identify the best practices for implementing RegTech as a crucial tool in your regulatory initiatives. Let us learn more about the definition of RegTech, its necessity, and the implications of RegTech in fintech.
Impact of Regulations on Operational Challenges
Regulations are an important aspect in every industry for ensuring safety of businesses and customers as well the global economy. However, the increasing burden of regulations alongside complicated regulatory expectations has been imposing significant operational challenges on firms that utilize solutions based on people, processes, and technology. In the case of new regulations and legislation, companies would have to encounter challenges in understanding and implementing the new regulatory requirements.
The origins of RegTech concept revolve around the implementation of standard frameworks which could reduce time and improve efficiency alongside security. The existing approaches for implementing RegTech focused on the choice between popular vendor systems and development of in-house solutions.
On top of it, the requirement for compliance-centric solutions could lead to more operational challenges. At the same time, the new RegTech solutions must align with the IT architecture of a company. Furthermore, the cost of new RegTech solutions could also increase by significant margins as compared to a customized technology solution.
The selection of ideal solutions from the RegTech ecosystem would have to account for implementation costs alongside recurring costs. Standardized approaches could help in implementing a set of controls tailored for compliance with intricacies of multiple data sets. As a result, the standardized approaches would not implement new rules for every dataset, thereby reducing the implementation costs. Most important of all, standardized approaches help in ensuring a more systematic approach to quality control.
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Definition of RegTech
The thought of a standardized approach for reducing compliance concerns and costs associated with the implementation of regulatory technology. At the same time, responses to “What is Regulatory Technology (RegTech)?” do not follow a specific pattern. The term ‘RegTech’ has different meanings for different people. However, RegTech has garnered significant levels of attention in recent times, with the rising regulatory costs and complexity of regulations.
Before diving into the different meanings of RegTech, you should know about fintech, which points to tech companies working in the banking and financial services industry. The 2008 financial crisis established that banks and financial institutions could not adapt to the increasing risks and regulatory modifications.
As a result, many tech companies introduced new approaches, tools, and methodologies for addressing issues associated with compliance, data management, and governance. Therefore, multiple tech firms found an opportunity to work on new solutions to resolve the issues in regulatory compliance and reporting.
The questions such as “Is RegTech the new fintech?” miss the fact that RegTech denotes the intersection of regulation and technology for addressing regulatory requirements of banks and financial institutions. The primary objective of RegTech revolves around innovative solutions for,
- Automation of manual processes.
- Facilitating a comprehensive view of data suitable for analysis.
- Simplification and improvement of data quality.
- Generation of insightful reports with the flexibility for sending to regulators alongside internal use for improving crucial business decisions.
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Key Characteristics of RegTech
The definition of RegTech provides a brief impression of the ways in which technology has transformed another notable industry. Interestingly, the regulatory landscape has been using different types of technology for more than 20 years. The answers to “What are the technologies in RegTech?” would point to the ways in which RegTech provides a distinction between software and non-software services.
You can identify the impact of RegTech and its differences with technology that has been utilized for addressing regulatory requirements in the past through its important traits. Some of the notable traits of RegTech include agility, analytics, speed, and integration.
- Agility in RegTech points to the effective use of ETL or Extract, Transfer, and Load technologies for de-coupling and organizing intertwined and cluttered datasets.
- The integration trait of RegTech points to the flexibility for faster integration which can ensure that you can have RegTech solutions working within short timeframes.
- The review of the RegTech concept also helps you identify how it empowers analytics. According to a recent report by Deloitte, a quote by famous biologist Edward Wilson has become more relevant than ever in the present times. “We are drowning in information while starving for wisdom.” Have you ever wondered about the quantity of data generated every day worldwide across millions of applications and digital systems? On top of it, it is also important to reflect on the ability to extract relevant insights from the massive repositories of data. How can you use the available data to your advantage? RegTech leverages different types of analytics tools for intelligent mining of existing datasets and extracting valuable and useful insights.
- Apart from the short timeframes for integration, speed is a distinct trait of RegTech. It can help in configuring and generating reports quickly, thereby expediting the decision-making process.
How is RegTech Better than Traditional Solutions for Compliance?
The traits of RegTech provide a clear impression of how it can offer better results than existing regulatory and compliance solutions. One of the crucial traits of the emerging RegTech ecosystem is agility. Traditional regulatory and compliance solutions focus on delivering results according to the specific requirements of a company. However, they present problems of inflexibility and demand development or modifications in a specific language for introducing new improvements.
On the other hand, RegTech leverages agility and explores the uses of advanced assessment techniques and analytics. RegTech strives to learn and support the faster evaluation of new regulations according to historical data and its interpretations. You can draw analogies with neural networks, which can help in predicting customer behavior or fraud. Experts believe that RegTech could help in automation of assessments regarding the effect of emerging regulations on businesses.
Another highlight about the distinctiveness of RegTech explained for beginners emphasizes the alignment of commercial models of popular vendors with multiple module purchases. Therefore, the full benefits of a RegTech solution would be accessible only through multiple plugins or modules for the preferred platform.
The higher price tags, alongside massive lead times for a change in such solutions, demand alternatives with better agility. Does RegTech remove vendors from the equation? The answer would direct you towards the necessity of experienced software vendors in getting a RegTech product to market.
The distinctiveness of RegTech is also evident in the cloud-based nature of RegTech solutions. Cloud-based operations of RegTech imply remote maintenance, management, and backup of data. You can find answers to ‘What is the importance of RegTech in fintech?’ by understanding the advantages of cloud-based solutions.
For example, cloud-based RegTech solutions could offer better control over cost alongside flexible and customizable control over data and the mechanisms for accessing and sharing data. The advantages of RegTech also involve security, which implies encryption of data during transmission and at rest.
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Which Areas Could Use RegTech?
The discussions about RegTech might paint it as an all-round solution for compliance challenges. However, RegTech might not be the savior for all compliance risks. It is important to reflect on the role of subjectivity alongside many other factors involved in managing compliance risks.
On the contrary, answers to “What are the technologies in RegTech?” show that RegTech works best in areas that involve risk identification and management tools, intensive quant-based obligations, and information-based obligations. Here are some of the notable examples of tools that can capitalize on the benefits of RegTech.
- Activity monitoring tools.
- Regulatory reporting tools.
- Universal compliance tools.
- Case management tools.
- Management information tools.
- Health check tools.
- Risk data warehouses.
- Regulation gap analysis tools.
- Training tools.
- Transaction reporting tools.
Difference between RegTech and Fintech
The overview of RegTech shows its significance in resolving a broad range of regulatory challenges. On the other hand, questions like ‘Is RegTech the new fintech?’ have also found their way into discussions about RegTech. However, it is important to note that RegTech is not the new fintech. Such types of doubts emerge from the fact that RegTech and fintech work in unison in many use cases. At the same time, RegTech and fintech serve as independent entities and have the capabilities to address different objectives.
Fintech involves the applications of technology to improve accessibility and management of financial services and products. On the other hand, RegTech focuses on how banks and financial institutions, alongside other regulated companies, follow regulations while focusing on improvements in efficiency. Fintech focuses on innovative solutions focused on customer needs for addressing the gaps in existing financial services organizations.
The responses to “What is Regulatory Technology (RegTech)?” focuses on the interplay between RegTech and Fintech due to innovation. New and innovative developments in fintech have led to formidable growth in demand for RegTech solutions. However, it is completely unreasonable to mix the two terms together. RegTech is not a sub-industry associated with fintech.
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What are some Examples of RegTech?
The introduction to RegTech would also demand an overview of a few examples of RegTech solutions. You must have come across popular analytics tools such as Tableau and Hadoop. These tools have access to a virtual data lake and work through organizing or structuring the data to enable customized reporting. At the same time, the tools have to ensure that the reporting mechanisms could align with the emerging regulatory requirements. Furthermore, the tools could also support application of analytics for big data along with additional functionalities.
The RegTech ecosystem can rely on tools like Tableau for capitalizing on visualization capabilities. With the power of an advanced visualization tool like Tableau, you can access new ways to evaluate your data alongside identifying trends. The outline of trends could help in recognizing anomalies from a regulatory perspective, even for individual customer transactions. In real-world applications, these tools could help in extracting data from core banking systems by utilizing limited integration and implementation cycle. The integration and implementation cycle serves better efficiency than replacements or upgrades for a core banking system.
You can refer to the examples of the following RegTech companies in Europe to understand the expansion of RegTech.
- TradeFlow is an emerging RegTech company for tracking trade data alongside technology for risk alerts.
- Silverfinch is also a popular Irish RegTech company for creating connectivity between insurers and asset managers. It utilizes a fund data utility with a controlled and secure environment.
- AssetLogic is another answer among examples for “What are the technologies in RegTech?” in the European market. It is a fintech company in Luxembourg that helps aggregate all the fund management data in a single source. AssetLogic focuses on improving efficiency of compliance, relationships with service providers, and data governance and marketing.
The definition of RegTech concept can be quite confusing for beginners as people confuse RegTech with fintech. On the other hand, RegTech focuses on the implementation of technology to improve compliance and adaptability to regulatory challenges. It is also important to note that RegTech is not the new fintech.
As a matter of fact, RegTech or regulatory technology helps in improving the capabilities of fintech companies to follow new regulations. However, RegTech is still in the initial stages and would require significant developments in the long run. Start learning more about the impact of RegTech on the world right now.