The 2008 financial crisis repositioned the banking, financial services and insurance (BFSI) industry forever, sowing the seed for massive regulatory renovation and increased compliance costs. Following the crash, regulators have been quicker to catch up to firms that have failed to comply with the more stringent regulatory landscape; which has driven more companies to invest more heavily in regtech solutions.
Throughout the entire month of May, The Fintech Times has dedicated its focus to highlighting the most current developments in this ever-perplexing and constantly-changing sector. We’ve explored which regulations are expected to have the biggest impact, areas where regulation is falling behind, as well as how regtech translates into the likes of embedded finance and open banking.
According to the data of Verified Market Research, the global regtech market size was valued at $15.68billion in 2020 and is projected to reach $87.17billion by 2028, growing at a CAGR of 23.92 per cent in the space of seven years.
Considering a smaller time frame, data also suggests that the global regtech market size will grow by $7.6billion in 2021 to $19.5billion by 2026, at a CAGR of 20.8 per cent during this period.
In a similar light, a study from Juniper Research suggested that the amount being invested in the sector will reach $76.3billion in 2022; and that total spending is forecast to grow 48 per cent per annum.
The growing global regtech market
Increased attention on financial regulations, increased adoption of advanced technology, and rapid expansion in collaboration between national regulators and financial institutions are thought to be some of the major drivers of the heighten regtech adoption the industry is seeing now.
Financial oversight is becoming increasingly data-driven, with regulators requesting data with greater depth and regularity. The sort of data required to assess compliance with most prudential rules, which are often quantitative and must be of high quality: structured, well-defined, accurate, and thorough.
Furthermore, banks have made, and continue to make, significant investments in the data and analytical IT solutions that are required. As a result, there is a rise in demand for regtech solutions for financial services, which is propelling the market forward.
On top of these factors, the increased number of fines imposed on large financial institutions, as well as incidents of money laundering and fraud involving respected firms, are driving up the demand for appropriate regtech solutions.
Regulators are keeping a tight eye on the entire industry, and have imposed more than $300billion in fines and penalties on the financial industry since the crash of 2008. Therefore reporting requirements and transparency are more important than ever for businesses to maintain compliance.
APAC is the fastest-growing region in the regtech market
The Asia Pacific (APAC) is home to many developing economies, and many countries in this region are adopting new technologies to comply with procedures for increasing the efficiency of financial systems.
The key countries involved in the movement include Australia, Japan, Singapore, India, China and New Zealand.
APAC is expected to witness the fast-paced adoption of regtech software and is estimated to be the world’s fastest-growing regtech market owing to the rise in the adoption of new technologies, high investments for digital transformation, the rapid expansion of domestic enterprises, extensive development of infrastructures, and increasing GDP of various countries.
Various industry developments
Back in March 2020, MetricStream established its presence to help the company develop faster in Australia and New Zealand. This business development provided MetricStream with access to the rapidly increasing Asian market, leveraging its governance, risk and compliance (GRC) products and solutions to serve Asian clientele.
Then in April 2021, IBM announced a definitive agreement to acquire the Boston-based application resource management (ARM) and network performance management (NPM) software provider Turbonomic. The acquisition provided enterprises with complete stack application observability and management, allowing them to ensure performance and cut costs by utilising artificial intelligence (AI) to optimise resources including containers, virtual machines, servers, storage, networks and databases.
More recently in November 2021, the regulatory reporting firm Point Nine partnered with FIS to focus on the provision of trade and transaction reporting services to legal entities across the globe.
With the supporting technology developing just as fast as the financial industry itself, certain trends have risen to prominence this year, including the increased incorporation of contemporary solutions such as AI and machine learning.
Here, Tomek Mlodzki, CEO and co-founder of the ID verification company PhotoAiD, details what he believes to be the biggest trends that are currently at work within the industry: “One of the most notable is the increasing adoption of AI and machine learning within regulatory compliance. This is allowing businesses to automate various compliance tasks, including report generation and monitoring for early signs of non-compliance.
“Another significant trend is the growing use of big data within regtech. This is providing businesses with new insights into their compliance risks by uncovering previously hidden patterns and correlations. This, in turn, is helping organisations to devise more effective compliance strategies and procedures.
“Finally, there is an increasing focus on collaborative solutions within the regtech space. This includes platform-based solutions that allow multiple organisations to share data with one another.”
Adding to these initial thoughts, Shiran Weitzman, CEO and co-founder of Shield, considers how regtech is now finding itself incorporated into the wider use of communication channels; being a particularly topical area given the rise of remote working teams.
Weitzman comments: “Today, across regulated industries, there are millions of human digital interactions every second. Communication channels, like Zoom, WhatsApp, Slack and more are now an integral part of the new workplace, but, with the proliferation of these electronics channels, we’ve seen a new wave of regulatory and compliance concerns that global institutions must address immediately.
“While banks and financial institutions never would have considered these communication channels pre-pandemic, they’ve become a part of our everyday company interactions, which, unfortunately, has led to a rise in harassment, bullying and other forms of toxicity in the workplace, while financial regulator requirements are being updated to maintain market transparency, integrality and investor protection.
“Some of the world’s largest institutions are even facing potential billions in combined fines because employees were using apps like WhatsApp. In today’s hybrid world especially, it is essential that the right technological solutions are put into place to regulate and monitor employee interactions globally, across regulated institutions.
“Regulation requires documentation, no matter if the employee is performing a nefarious activity or not. A historically manual process, today’s most advanced solutions employ current monitoring technology that uses AI, machine learning and other technological solutions to automatically capture, archive and provide surveillance over the communication channels that have become especially relied upon in remote and hybrid work environments.
“Modern employee communication channels have created massive operational, data, risk, conduct and compliance challenges, so institutions must ensure their compliance and regulation technology adapts along with the electronic communications tools that are being used.”