RegTech and Its Impact on the Financial Industry

RegTech (Regulation Technology) is a subject of different interpretations to different people. Given the large scope of its functions, it’s best to review it from a global perspective. In a prominent publication titled “RegTech is The New FinTech”, Deloitte describes RegTech as a regulatory solution that’s cost-effective and easy to integrate. The technology uses advanced analytics to assist banks with data reporting and compliance. 

Digital transformation companies employ RegTech to bring the required agility, speed and efficiency. This push is necessary in order to not only play within the provisions of new regulations but also to account for a multitude of data. Additionally, FinTech and RegTech leverage IT solutions to manage transactions. Let’s have a closer look at the development of RegTech and its application in the banking sphere.

Digital transformation in finance – changes so far 

The 21st-century financial industry saw the emergence and rapid growth of technology. Fintech services at their core were designed to enhance, promote and improve financial products. The surge was an alternative to the conventional methods of delivering financial services. Many firms of finance had endured the lack of real-time monitoring offered by Fintech software solutions. Of course, the secured regulation of transactions was also broken. 

When FinTech began ushering in digital transformation in finance, startups jumped on the bandwagon. Eventually, older financial firms who have been around for over a decade started retouching their crafts. Now, they equally use such technologies to keep up with the digital transformation in banking. The result of this and similar beef ups is incredible ease of managing transactions. 

To avoid wobbly insights into what’s actually improved, one must estimate the impact of Fintech of Regtech by degrees and years. For instance, in 2018, 66.7% of senior banking executives said that non-traditional financial firms had positive impacts on wallets and mobile payments globally. Again, according to Statista, the first quarter of 2018 witnessed the highest value of the investment in FinTech companies in Europe. Approximately 20.4 billion U.S dollars was invested in the first quarter alone. The future of the financial institution rests, undoubtedly in on the shoulders of FinTech. As a prognosis, the number of digital banking users in 2019 was expected to surpass 161 million in the United States alone.

FinTech Software Solutions Supported by RegTech 

RegTech companies provide solutions to software problems that may surface as a result of the shift to digital banking. They act on a proactive basis, snuffing out such hiccups before they become overwhelming. The preventive measures put in place by RegTech make it easy to monitor customer transactions. You could likewise get a hold of user attitudes by providing a large pool of information from which effective regulations can be drawn. We can summarize the key roles of RegTech as the points below: 

  • Compliance: Fintech RegTech tools leverage AI and machine learning to search new and reviewed regulations and informs the stakeholders of the relevant changes. Bold companies who have adopted Fintech-Regtech banking strategies have no issues keeping up with the EU General Data Protection Regulation (GDPR). Because these regulations are regularly updated, those organizations with no roots in regtech could end up falling off the crack. 
  • Identity management and control: As seen on Forbes, Know Your Customer (KYI) schemes have jacked up as much as $500 million annual spendings. The modern KYI initiative works with Anti-Money Laundering (AML) programs. Regtech helps with identity authentication and screening eliminating the need to work with documentation manually. Again, AI and machine learning make authentication more accurate by rapidly gathering data from multiple sources 
  • Risk management: RegTech algorithms can continuously monitor risks and predict market changes. In particular, they are considered most effective for fraud detection, AML transactional analysis, network discovery and risk analysis, incident investigation, etc. 
  • Regulatory reporting: RegTech automites data validation, categorization, and classification, which allows quick data processing and preparation of accurate and timely reports. 
  • Transaction monitoring: RegTech ensures that suspicious activity and illegal transactions are prevented or identified early in the process. With the increase of online and instant payments, this function becomes crucial. 
  • Data protection: RegTech digitally fortifies the walls of these financial establishments. The tools protect funds and information at all times so that clients may not worry about the safety of their funds and data. 

What is more, although digital transformation requires initial investments, automation, which comes with Fintech and Regtech, reduces overall management costs. This makes cost optimisation another important role RegTech plays.

The Downside: Regulation and Privacy Concerns 

Unfortunately, digital transformation in finance has brought about new vulnerabilities in the banking sector. FinTech gave access to anonymous third parties. By offering secrecy to these so-called affiliates, it made way for hacking and illegal transfer of funds. The irony of this shortcoming is that the technology was built out of the fight against fraudulent digital activities. 

Another minus is that Regtech’s Fintech IT solutions create a negative feedback loop in terms of regulation. Since RegTech focuses on harnessing regulatory monitoring, it affects the difficulty-level of the regulations. If the bodies of regulation believe that the majority of digital banks pass the regulation requirements, they quickly toughen them. Two other areas of concern arise here too: 

  • Inaccessibility of the technology due to the lack of technical know-how and access to data 
  • Complexity of the regulation laws to laymen – there’s often a need to contract lawyers to explain the terms Fintech and Regtech uses.


The inventions and innovations in the world of finance make it increasingly difficult for institutions to manually maintain the pace. With the level of its impact so far, it is safe to assume that RegTech owns the future of the financial industry. 

Author: Yash Hirani

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