The Increasing Importance of Regulatory Technology (RegTech) Companies

Sudhanshu Ranjan is an Associate Analyst II at AML RightSource. We encourage our team members to share their insights and expertise by contributing to our content library.

“The great growling engine of change – technology.”

– Alvin Toffler

What is Regulatory Technology (RegTech) and its benefits? 

Organizing the massive amount of complex data that financial institutions have and making sense of it is demanding. It gets even more challenging when the responsibility of regulatory compliance is put on their shoulders.

Increasing accessibility of different technologies around the globe, especially after the COVID-19 pandemic, escalates the risk of new ways of committing financial crimes. But it can be countered by the same weapon, i.e., technology.

The term for that technological shield is Regulatory Technology (RegTech), which is deploying new software to achieve different regulatory objectives.

It is a transformation in the ways of performing complicated financial processes.

Here are some benefits of RegTech:

• Compliance Automation -- using technology such as Artificial Intelligence (AI), Machine Learning, and others to automate compliance systems. It replaces manual processes and keeps all data functioning in one place.

• Data Management - using software to perform compliance processes leads to data storage at the partner’s convenience and enables its better use.

• Speed and Accuracy -- Speed is the fundamental tenet of technology. It is not affected by any holiday or changing position of the sun. And the accuracy of any technology, thanks to Machine Learning, gets better daily.

• Cost Reduction -- using software to perform compliance processes drastically decreases operations costs while maintaining quality results.

• Customization -- the technology's usage and function can be customized per the needs and goals of different clients.

Other benefits will be highlighted below.

Its role in fighting financial crimes for the client and the world 

In the last couple of decades, technology has changed the lives of each living individual. It would have been difficult to think four to five decades ago that a cuboid-shaped device would one day become man's sixth sense. Living without this will be the most challenging task. But it is a reality now.

RegTech, in the same way, has the potential to fully transform the financial and compliance industry. It has its drawbacks, as any other technology has, but only if used irresponsibly.

Household reach of technology poses new and unique types of crimes. And that can only be countered by the same innovative technologies if used smartly. Wide use of RegTech tools and technology will create a robust digital infrastructure that can easily fight financial crimes.

This is why even the Central Banks worldwide are interested in these new RegTech tools to effectively automate their complicated processes.

And if the winds flow in the same direction, RegTech will soon replace the historical adjective of regulatory compliance from a solemn or tedious task (headache) to an enjoyable activity.

How RegTech can help you

How can RegTech tools help you meet your regulatory objectives effectively and efficiently?

• These tools can handle and process a large amount of complex data quickly compared to manual processing.

• When you have these advanced tools deployed, the cost of operations drastically goes down.

• Technology allows businesses to decide more quickly, respond more quickly, and remain flexible.

• Many advanced tools can perform repetitive tasks more accurately than manual processing.
  • As they are exposed to multiple sets of data and patterns of different financial crimes, these tools get more and more accurate in their results and reporting.

Conclusion

After sharing many benefits of RegTech comes with associated risks. The massive amount of data being stored and processed in a single place is vulnerable to cyberattacks and other threats.

When adopting new technologies, you should focus on strengthening human capital and skillsets to minimize the associated risks.

“It's not a faith in technology. It's faith in people.”

- Steve Jobs, Co-founder of Apple.