This month TABB Group published a new report entitled Financial Markets: Embracing RegTech, which offers a comprehensive review of the current landscape of regulatory technologies. Specifically, the report addresses RegTech drivers and benefits in financial services, outlines the regtech ecosystem, and, finally, offers several case studies that underscore successful examples of RegTech in practice.
The April 2017 report – Financial Markets: Embracing RegTech – explores the exciting, and increasingly important RegTech ecosystem, offering an insightful overview on important and relevant developments within the innovative regulatory technology landscape. The publication was created by the fintech research practice of TABB Group, an international research and consulting firm that focuses exclusively on capital markets.
In its introduction of the topic, the report defines RegTech as the use of financial technology (fintech) to solve regulatory compliance, risk management, and surveillance challenges. Venture capital funding for regtech start-ups totalled approximately USD 2.3 billion from 2012 to 2016, as cited from CB Insights. Providers of innovative tech solutions have been able to capitalise on the perception that regtech can offer financial services firms significant opportunities to better leverage capital and develop competitive advantage.
The regulatory requirements of today, as well as those of the future, should be supported by a flexible and agile compliance platform, and the technological building blocks needed to achieve this are already readily available. This regtech ecosystem that includes regulators, professional services, firms, vendors, utilities, and leading financial institutions, continues to expand and grow. Where regulations present challenges for institutions, regtech is offering unique and innovative opportunities to conform these head on.
RegTech drivers & benefits in financial services
In the first section of its report, TABB Group highlights the need for proactive, real-time surveillance in zero-tolerance compliance environments as a key driver contributing to the rise of regtech. It further stresses that several key market and technological drivers exists which underscore this fact. After briefly noting these key market drivers, a number of important technology drivers are described in greater detail, namely:
- Cloud computing and open standards
- Application Programming Interfaces (APIs)
- Artificial Intelligence (AI) & deep learning
- Micro-services and containers
- Real-time monitoring, big data analytics, modelling and forecasting
- Robotic process automation / Intelligent automation
The report subsequently delves into the potential benefits of regtech. In particular, it asserts the potential to apply regtech solutions to help transform compliance into a competitive advantage. Another important factor mentioned within the report is the ease of implementation for regtech solutions, which generally does not require old systems to be jettisoned. With fundamental architecture in place, it maintains, firms can partner or create low risk, adaptable solutions and better accelerate the legacy modernisation process.
The RegTech ecosystem
The following section of the report offers insights around the current state of the regtech ecosystem. It provides data for current numbers of capital market regtech vendors, as well as geographic distribution of these. Further information is provided about regtech sandboxes that were recently launched or announced. Regtech, it argues, is not just about the world of start-ups. In fact, larger incumbent players have plenty to offer, especially in Europe where MiFID II will soon come into effect.
RegTech in use
In the final part of the report, several regtech use cases are presented, with three specific case study examples highlighted for relevance. The included case studies were presented to offer more detailed insight around several areas, namely: risk aggregation and reporting, liquidity risk and stress testing, and compliance with varied global data archive and conduct monitoring regulations.
To access the full report – Financial Markets: Embracing RegTech – by TABB Group, click here.