Regtech Innovation: Key Trends & Challenges

May 2022

Fintech & Payments

Harshada Thok

Research Analyst

The Growing Importance of Regtech

Over the past few years, the concept of regtech has taken on much importance within the financial services ecosystem and beyond. During the COVID-19 pandemic, regulatory compliance has become more complicated and essential, meaning regtech is a highly dynamic and rapidly evolving area.

However, we believe that regtech will also become important in areas other than financial services, as highly regulated verticals seek to ease their compliance burdens.

The Main Challenges Faced by Regtech

The regtech market is facing several challenges, while adapting to the constantly changing global regulatory framework and utilising technological systems like blockchain to deploy effective regulatory solutions. 
The emergence of fintech in the new post-pandemic way accelerated the digitisation of regtech applications and changed the landscape positively. 

There was a notable rise seen in the investment in regtech firms, due to businesses having to cope with increasing levels of regulation that have come into force between 2012 and 2021. Beyond simply meeting regulatory requirements, many regtech firms enable businesses to access the ‘big data’ that holds the potential to both address many compliance concerns and provide valuable insights into their business. Even with changes to regulations, there are still multiple challenges for organisations in rationalising their regulatory compliance strategies.

Implementation of Regtech Regulatory Change

Financial institutions need to reconsider their take on the impact of regulation. It should be done in a structured way to ensure consistency and to mitigate regulatory risk. Plenty of existing regulations evolve over time and this requires constant monitoring and review of business processes to ensure ongoing compliance.

As a result of these and other challenges, organisations are seeking regtech solutions to improve their compliance without increasing their workload. The main objectives for regtech deployment are outlined below:

• To address a lack of experience or skill in the organisation with regulatory functions.
• To adequately adhere to compliance requirements as laid out by relevant regulators. 
• To provide reassurance that processes are being followed correctly throughout complex business processes. 
• To save on costs associated with compliance through the automation of current, resource-draining processes.
• To avoid fines for non-compliance levied by government and regulatory bodies.

• Global regtech spend will exceed $204 billion by 2026; accounting for over 50% of all regulatory compliance spend for the first time.
• The integration of regtech services with BaaS (Banking-as-a-Service) models as key to realising this future market growth.
• 26% of digital onboarding processes in the banking market will use AI systems by 2026, compared to just 8% in 2022.
• Regtech vendors must provide verification services in emerging areas where compliance is being disrupted, such as cryptocurrency exchanges, digital healthcare and online gambling.