Regtech: 44% of SMEs are investing in the space

Regtech is one of the most talked about buzzwords making the rounds in SME finance compliance. A significant number of financial firms invest in this technology to manage the increasingly complex regulatory landscape.

What exactly is regtech and what can it do for SME lenders?

What is regtech?

The term regtech is short for ‘regulatory technology’ and was first coined in 2015 by the UK’s Financial Conduct Authority (FCA). The FCA called it:

A subset of fintech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities.

Regtech offers the management of regulatory processes by providing advanced solutions within the financial services industry, and in SME finance. The main functions are:

risk management
regulatory reporting
identity management
compliance and transaction monitoring

Some of the important characteristics of regtech are agility, speed, integration, and analytics. With the seemingly endless rate of regulation expansion, regtech is becoming increasingly popular.

The rise in the popularity of digital products has seen an inevitable uplift in data breaches, hacking, money laundering, and other fraudulent activities. This increase has made the use of technology to streamline the regulatory process in financial services a fast-moving and fast-growing sector.

Regultaions are ever-changing and business needs creating a rocky foundation for lenders, banks and other financial companies. Regtech can provide an end-to-end platform for simplifying complex regulatory compliance.

How it works

The regtech landscape is made up of companies that use software-as-a-service (SaaS) to solve the challenges of a technology-driven economy. Using SaaS and automation, they can support businesses in complying with regulations efficiently at a lower cost.

Cloud computing is cheap and users can share data quickly and securely with other entities. This is a major benefit when a financial institution collaborates with a regtech firm.

A financial institution that receives huge amounts of data may find it too complex, expensive, and time-consuming to comb through manually. Through the use of Big Data and machine-learning technology, regtech seeks to monitor online transactions in real time, working to identify irregularities and flagging outliers to the user for closer analysis.

Administrative, repetitive tasks dominate compliance professionals’ working hours, suggesting there is a greater need for automation within the sector. A traditional compliance team may not have the agility, speed, integration, and analytics provided by regtech, resulting in potential threats not being picked up early enough to avoid lost funds and data breaches.

Why regtech is gaining popularity

It’s reported that 44% of firms are planning to invest more in regtech solutions in the next 12 months to support them through regulatory changes and challenges related to data management. A regtech company can combine complex data from a financial institution with data from previous regulatory failures to predict potential risks that the organisation should focus on.

Regtech can quickly separate and organize cluttered and intertwined data sets through extract and transfer load technologies. Whereas in the past compliance has been essentially a painful firefighting exercise, with the use of new technology organizations can transform compliance into a competitive advantage via the many benefits it can offer.

Benefits of regtech:

Regtech tools enable companies to detect, allay, and avoid risks such as fraud, market abuse, and non-compliant trades overall improving their risk management. If any such activities are picked up, the tool will alert the appropriate person so the issue can be dealt with promptly.
Regtech cuts down the cost, time, and effort associated with compliance, by making the entire process simpler and cheaper. Organizations can instead spend more money, time, and effort in other areas, which can improve efficiency.
Financial organizations operate with strict marketing regulations that ensure advertising is not misleading or deceptive, therefore companies must establish a solid auditable process for reviewing and approving marketing materials. Regtech can speed up this process by automating and streamlining.
Regulators around the world use advanced technology to process and search regulatory filings to determine which companies should be examined. This technology uses sophisticated methods of examining data and detecting anomalies or suspicious activity which, once detected, will mean that the organization in question may be subjected to regulatory scrutiny. Regtech can help manage filings and ensure everything is accounted for in a centralized location so you’ll never be caught out with a missing filing.
Ensuring that organizations are using cutting-edge technology to ensure their customers’ protection is key to boosting trust in their brand. Regulations exist to protect consumer data and assets, so showing that a financial institution is taking a serious approach to keeping their customers from harm creates a much-needed level of trust.

Why this matters for SME finance

So, why aren’t more organizations already implementing regtech for their compliance? One reason might be the need for the strong data foundation required for successful deployments.

In a recent report, Matt Smith, CEO of SteelEye, said:

Technology and data are key to establishing future-proofed compliance processes and procedures. It is great to see that a large proportion of firms view the enhancement of data quality as a top priority and that most firms are actively investing in technology. By prioritizing how to bring together disparate datasets and make better use of data firms can more easily address regulatory change and other compliance challenges that will emerge down the line.

In order to meet regulator expectations, financial companies must store, access, and process data on a scale never previously expected. Additionally, executives have to re-examine infrastructures to make sure they have the storage and capabilities to operate effectively in the new environment with the bar being raised in terms of provision of data as evidence of ongoing compliance.

Regtech is empowering financial institutions to take a new approach from the ones they may have taken in the past, where compliance was a frustrating, expensive exercise. The paradigm is shifting from firefighting to predicting and mitigating potential compliance threats, giving companies more control and creating a world where it is easier for businesses to comply, unlocking both opportunity and business value without compromising consumer protection.

The FintechOS platform has an advanced, evolutive approach to data management that can support regtech, and it integrates easily with regtech platforms. To find out more, book a demo.

FintechOS

FintechOS is the global leader in fintech enablement, on a mission to make fintech innovation available to every company. As the world grows increasingly complex, FintechOS strives to simplify and accelerate financial technology so anyone can build, launch, service, and expand new products in weeks, not months or years. The FintechOS platform empowers banks, credit unions, and insurers of any size to grow revenue, lower operating costs, and achieve a faster time to value without dependency on core infrastructure and costly tech talent. Headquartered in New York and London, FintechOS has partnered with some of the world’s best brands, including Groupe Société Générale, Admiral Group, Oney, eMag, Deloitte, EY, and PWC.