RegTech is the New Black. A Guide to the Latest FinTech Trend

It all started decades ago when the technology started to live and prosper and the governments had to impose certain regulations to keep everything under the law. Each tech enterprise, be it a small web agency or a large software production, operates under the laws of their state.

Government regulations pass and change more frequently than companies can cope with them — there’s just not enough time to shape a product or process to comply with some act. But noncompliance usually results in huge fines and sanctions.

When it started to happen regularly, it was decided that companies needed a separate compliance department. Basically, it was a back office full of lawyers and managers whose job was to monitor and identify the changes in existing regulation and prevent and resolve the issues related to following the regulations.

Like all tech companies operating in Europe, we faced a problem with storing personal data. First, we would study the regulation itself, and then understand how it would affect the product. We had little idea of what we had to do to comply with GDPR. That’s when Regulatory Technology aka RegTech comes to our rescue.

On the one hand, we have a bunch of regulations to comply with. On the other, not all companies have a budget for a compliance officer. RegTech is the happy medium. It’s a technology that works to standardize regulatory processes, create unambiguous interpretations of the regulations, and most important — automate the compliance process.

Compliance. This is the biggest area of RegTech. AI and machine learning can search for new or reviewed regulations, report, and share the impact of changes with the stakeholders. The algorithms are programmed to automatically perform these tasks, with appropriate reviews at key decision points made by the compliance officers. Installing compliance software would help to avoid all those fines imposed by GDPR, as not a single act would be unnoticed.

Risk management. Some RegTech solutions continuously monitor risks. It means they learn to detect potentially insecure situations based on predefined data. In the FinTech industry, risk management software uses advanced analytical approach and big data analysis to predict market changes and mitigate similar risks. After all, machines are far better with numbers than people, right?

Identity management and control. The Know Your Customer (KYC) process deals with client identity authentication and screening processes. Mostly a routine manual work, it’s subject to a human error which may lead to identity fraud or money laundering. RegTech developers rely on advanced data aggregation and analytics tools to expand the scope of the identification process by gathering information from multiple sources.

Regulatory reporting. Do you enjoy drawing up reports? Machine do, though. And they are way better at this than people. We make errors and this results in unclear or incorrect data. Robotic Process Automation (RPA) makes data management work without additional employees being involved, so there’s timely and accurate data at the end.

Transaction monitoring. The process of monitoring financial transactions is normally carried out by a distinct department. They have certain standards regarding what should be considered suspicious. Again, RPA can analyze and monitor transactions faster and more accurately than a person.

Conclusion: most RegTech software uses RPA, Big Data Analysis, AI and Machine Learning. Now let’s take a close look at some RegTech companies and the solutions they offer.

Up till this moment, RegTech solutions might’ve seemed like a vague and unclear software, but in this part, I’m going to tell you about 5 working RegTech solutions that are already on the market and, most important, they work.

Continuity is a US company that provides regulatory compliance software. The program continually monitors the US Federal Register and, based on the client’s business area, it interprets changes to the regulations that apply to the client’s business. Instead of hiring additional staff, you can use Continuity. Moreover, it offers a Unified Compliance Management System Model, which is an automated compliance process that operates according to a specific schedule.

Provenir is a risk analytics software that integrates with any structured and instructed data source and creates risk analyses based on preset parameters. Such data sources include Twitter, Facebook, Salesforce and many other tech giants that work with high load databases. This multivariate application can be used in different industries, from e-commerce websites to banks. By the way, HSBC is their largest client.

IdentityMind is a platform to take care of your KYC process: it searches, maintains, and analyzes identities, which allows companies to know who a person is to detect and prevent identity fraud. For commercial businesses, it means better protection from money laundering.

Regis-TR is a RegTech development company that offers reporting software for all kinds of trade transactions for various assets in the EU. Their reporting system complies with three regulations: EMIR, FinfraG, and SFTR. The company aims to create a whole ecosystem where clients shall be able to report their data to one entity at a time and not break any regulations.

Feedzai is an AI-based platform to prevent financial violations. Simply put, it offers banks and commercial tech companies payment processes protection to detect fraud. It uses historical and behavioral data analysis to identify whether a transaction is potentially suspicious or not.

As you can see, RegTech is no magical thing, but a very area-specific B2B service. Those 5 software companies are only a tiny bit of the entire RegTech industry. Most of the solutions rely on the use of AI and machine learning to exclude human error from regular processes like reporting and risk management. The market is quite unstable, though. Lots of new players are entering the marketing, and I believe that it’s a matter of time that RegTech solutions will invade most FinTech companies worldwide.

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