Last year was a record year for global investments in regulatory technology (“RegTech”), according to research from FinTech Global. Growth is being driven by increasing regulatory pressures faced by financial institutions and coincides with the implementation of legislations such as PSD2 and MiFID II in January this year.
Overall RegTech investments increased by more than 16% last year.
Capital invested in RegTech companies globally increased steadily at a CAGR of 10.8% between 2014 and 2017 to reach a total of $1.04bn.
As the RegTech industry matures the growth in investment is mainly driven by later-stage deals. Last year funding from deals valued above $40m increased by more than 50%, whilst funding from deals in the $0-40m category remained fairly steady. In contrast, deal activity dropped in 2017 to reach its lowest value since 2013. Correspondingly, the average deal size increased from $9.8m in 2016 to $13.5m in 2017.
Nearly half a billion dollars was invested in Q4 alone
The RegTech industry attracted $448m in Q4 2017 – more than double the value of the previous quarter. This makes Q4 the strongest funding quarter ever, equating to 43.2% of the total capital invested in the whole year. Deals valued over $40m accounted for almost half of the funding in Q4 2017. The total investment from this category increased nearly ve-fold QoQ, while funding for sub-$40m deals increased by 59.8%.
The largest RegTech deal of Q4 2017 went to MetricStream, a provider of cloud-based solutions for governance, risk and compliance. The company raised $65m in a venture round led by Clearlake Capital Group with co-investment from Goldman Sachs, Sageview Capital and EDBI. Despite the surge in total amount invested, the level of deal activity in Q4 2017 remained within a range of historic levels at 23 deals, seven less than the same quarter in the previous year.
There is increasing geographic diversity in RegTech investments
In 2014, almost 70% of all RegTech deals were concentrated in North America, while Europe held a 25.5% share. Even though deal activity in North America remained at a healthy level, the region’s share of overall RegTech deals decreased by 13% between 2014 and 2017.
Over the same period, Asia’s share of RegTech deals increased from 1% to 6.2%. All deals in Asia were located in Singapore, Hong Kong, China or India. Additionally, the ‘Other’ category, which includes South America, Australasia and Africa, increased in deal share from 1% in 2014 to 7.2% in 2017. This highlights the spreading geographic range of the RegTech industry as it matures.
Research from the Global RegTech Review reveals that almost half of all RegTech companies address AML or KYC regulation. Over $1.7bn was invested in solutions that address these legislations between 2012 and H1 2017. The third most commonly addressed regulation by RegTech companies is MiFID II, followed by Basel III and PSD2.
The data for this article is sourced from the FinTech Global database. More in-depth research, data and analytics on investments and companies across all FinTech sectors and regions around the world are available to subscribers of FinTech Global at www.FinTech.Global