As the world increasingly embraces FinTech, a new technological force has been gaining prominence behind the scenes: RegTech. Designed in response to growing regulations within the sector, RegTech is set to play a key role in managing the rules for the ever-changing game called finance.

Since the 2008 financial crisis, institutions have been facing growing pressure to comply with new regulations. As FinTech has moved away from its disruptive roots and into the mainstream, RegTech has found its feet in the background, and looks set to become a crucial aspect of the financial services sector. But what is RegTech, exactly?

Automating Regulation

“A sub-set of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities.” Financial Conduct Authority, 2015.

RegTech – or Regulation (sometimes Regulatory) Technology – encompasses different applications and technological innovations which help financial institutions to simplify the regulation process, whether that includes machine learning or bespoke software development.

In an effort to prevent another disastrous financial crash happening so soon after British banks were bailed about by the public, the government introduced a whole raft of regulations which hold financial firms accountable. However, the work that comes with staying compliant is often stifling, prone to change, and threatens the day-to-day stability of running said firms.

These regulations include anti-money laundering (AML), Know Your Customer (KYC), and stress testing. They’re key to insuring that financial institutions are working to the same rigid framework across the board, and have served as an important starting point for RegTech start-ups.

Why This is RegTech’s Moment

Although work in the RegTech sector is not brand new, the spotlight has unquestionably belonged to FinTech in recent months. Coined by the FCA back in 2015, the term has predominantly been identified as a subset of FinTech.

Now, as more start-ups join the RegTech revolution and help firms manage their risk and compliancy, RegTech looks set to break away from its predecessor altogether.

The main reason for this is the agility which RegTech allows for. As regulations update and the pressure builds to keep up, financial institutions need to act quickly and decisively to remain in good favour with both the public and the regulators.

What Are Some Trends We Can Expect to See?

What’s exciting about RegTech is the creative ways start-ups have been applying technology to regulatory requirements. Contrasting somewhat to FinTech, there’s also a much greater focus on internal applications of RegTech within an organisation, rather than reserving innovation solely for customers.

The UK has been at the forefront of delivering RegTech innovations, covering areas such as:

• Identifying Clients and Employees: London-based start-up, Onfido, uses machine learning to provide faster, more in-depth background checks to satisfy KYC and AML regulations. Onfido uses automated data aggregation and verification to check identities across vast public databases at speed.
• Improved Risk Management: Another start-up from the Capital, Credit Benchmark helps institutions to make better risk management and capital allocation decisions. Credit Benchmark works by aggregating and anonymising credit risk data from different global banks, providing far more information than traditional methods, and curbing reckless decision-making.
• Protecting Sensitive Information: With the recent spate of leaked emails plaguing organisations in recent years, it’s become vital to protect sensitive information from falling into the wrong hands. CheckRecipient prevents this by analysing millions of data points across an organisation to detect patterns and find misaddressed emails. The machine learning aspect of CheckRecipient then analyses whether or not sensitive information is included in unusual email addresses, and checks with the sender that their intentions are correct before sending.

There are, however, a whole wealth of other areas UK tech start-ups are focusing on, and several seek to streamline the compliance workload with bespoke software.

What Next for RegTech?

Heralded as the ‘New FinTech’ in an exploratory report by Deloitte, RegTech is clearly enjoying its moment in the spotlight. But aside from its similarities to FinTech and the presence of UK tech disruptors, we should judge RegTech on its own merits.

At Kaleida, we’re excited to see what RegTech innovations can come from the Manchester start-up community. As a city that’s proud of its technological roots, it’s only a matter of time until Manchester’s RegTech community produces bespoke solutions to rival the capital.

As the banks continue to try and build trust with the public, remaining compliant – and demonstrating that compliance – is an important task. Adding to that the changes to financial services on the horizon as Brexit looms ever closer, it would seem that RegTech certainly has a very busy – and innovative – future ahead of itself.

Kaleida is a bespoke software house, developing business software and bespoke solutions for clients across a wide range of industries. To find out more about what we do, and how we could help you, simply get in touch – a member of our team would be happy to help.