The 2008 financial crisis brought with it heightened scrutiny of the financial sector worldwide. Then, the emergence of digital technologies has presented financial institutions (FIs) with new challenges, including data breaches, cyber security risks, and growing cases of online fraud. This makes complying with regulations a difficult and expensive task.
RegTech or regulatory technology — a wide range of digital tools and software that assist FIs to meet regulatory requirements — enters the picture at this point.
The role of RegTech is critical for companies across the globe. This is largely because these companies cater to the various needs of banks and other financial industry players by providing solutions for regulatory compliance. Here, technology seeks to significantly increase the efficacy of internal monitoring, compliance, and reporting procedures within FIs by extensively relying on big data and machine learning.
Advantage RegTech
An extraordinary transition from a period of under-regulation to one of extensive regulatory interventions was brought about by the 2008 banking crisis. Financial firms hurried to put internal procedures into place and provide personnel training to meet increasing regulatory demands. Simultaneously, deep learning and neural network technology underwent tremendous advancements in the early 2010s, leading to an accelerated surge in Artificial Intelligence (AI) capabilities. Compliance solutions have developed at this nexus of regulatory complexity and AI’s promise of efficient process automation.
Regulation and compliance technology provides businesses with distinct advantages owing to their capacity to process massive volumes of data rapidly and precisely. These include:
- Increased efficiency: Rules are flexible, laws are changed and new ones are passed continuously. Attempting to manually monitor this ever-evolving regulatory environment is nearly impossible. New legal requirements can be automatically parsed on a real-time basis by using the appropriate technology. This enables financial organizations to effectively adapt to new regulatory demands.
- Enhanced accuracy: Mistakes are common in manual operations. So, when used correctly, RegTech produces significantly more accurate results.
- Improved risk management: Regulation tools not only support compliance, but also identify and help reduce risks such as fraud and cyberattacks. This enables businesses to react to legal and security risks as soon as they materialize.
- Greater trust: At the end of the day, the success of any business rests on its consumers’ trust. Putting the appropriate RegTech in place helps support and develop this faith. Using this technology indicates a sincere attempt to follow rules, and set up the required internal procedures to safeguard assets and consumer data.
- Long-term financial savings: Although implementing RegTech may seem like an expensive undertaking, it saves FIs’ funds over time. Once operational, these implementations can decrease the likelihood of fines for non-compliance, enhance output quality, and free up internal resources.
Some Challenges
The smooth functioning of banks and other FIs is essential for the efficient working of a modern economy. These bodies offer a wide range of financial services, including loan provisions, transaction processing, and insurance, among others.
Without the use of automation and RegTech, financial companies would find it nearly impossible to comply with the changing regulatory requirements.
Challenges faced by FIs include:
- Governments frequently implement new financial restrictions.
- Changes to current regulations and circulars.
- Exorbitant production and deployment expenses for the solution needed to comply with the legislation.
- Penalties for breaking the regulations are severe.
- Legacy system limitations as well as inadequate automation and digitization to keep up with the rate of legislative changes.
- Lack of standards, mismatched systems, and inadequate system integration.
Cyber security threats, fraud, and regulatory complexities are likely to grow in the future. Seen in this light, RegTech is not an option, but a necessity. These solutions will help companies operate in compliance with the law, avoid expensive errors, and streamline internal processes.
The India Story
RegTech is rapidly altering the way various industries manage governance, risk, and compliance, which is transforming the Indian business environment. It is becoming increasingly popular in the country, as it provides tech-driven solutions that automate compliance procedures.
A vital enabler that improves accuracy, streamlines procedures, and ensures compliance with laws, RegTech is quickly emerging as a game-changer for India Inc. It helps to simplify complex regulatory frameworks in a multitude of international industry sectors and jurisdictions.
RegTech solutions are designed to adhere to the guidelines and standards established by regulatory agencies such as the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Insurance Regulatory and Development Authority of India (IRDAI). These technologies are being used to streamline reporting, prevent money laundering, and manage Know Your Customer (KYC) regulations. FIs can collect data and automatically generate reports in accordance with the format and timeline mandated by different regulatory bodies with the use of technology-based systems. It helps regulators fulfil their roles as supervisors by enabling them to monitor the speedy changes in the industry while using data in a standardized way.
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Players in the Domain
RegTech companies in India include Netrika Consulting India Pvt Ltd, Signzy Technologies Pvt Ltd, Tookitaki Holding Pte Ltd, Complyify Technologies Pvt. Ltd, and Crediwatch Information Analytics Pvt. Ltd, OneMoney Technologies · Razorpay, Signzy, Primechain Technologies, Tookitaki, and CustomerXPs, among others.
MarketsandMarkets forecasts the global RegTech market size to grow to $19.5 billion by 2026, at a Compound Annual Growth Rate (CAGR) of 20.8%.
The study also names the major global vendors in the RegTech space, including ACTICO GmbH (Germany), Ascent Technologies Inc. (US), Ayasdi AI LLC (US), Broadridge Financial Solutions, Inc. (US), Chainalysis Inc. (US), IVXS UK Limited (UK), Deloitte Touche Tohmatsu Limited (US), Fenergo, London Stock Exchange Group plc (UK), IdentityMind (US), International Business Machines Corporation (US), and more.
These players have used a variety of growth methods, including alliances, corporate expansions, mergers and acquisitions, agreements, collaborations, and the introduction of new products.
Bottomline
RegTech is changing the way India Inc thinks about compliance. Businesses can increase the efficacy of procedures like transaction monitoring, risk assessment, and identity verification by utilising this technology.
In the near future, the ecosystem will see the implementation of regulatory standards and governance frameworks and an increase in acceptance within the financial services sector. The RegTech ecosystem, which is at a critical stage, has a lot to offer solution providers and regulated businesses.
This tendency will continue in the risk and compliance domain as regulated firms undertake digital transformation projects, mainly to enhance business prospects and customer experience. With the backing of regulators and the business community, RegTech solution providers can deal with intricate requirements from start to finish, and change the risk and regulatory compliance landscape.
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Written by: AARTIE RAU
