Some may have heard of the term “RegTech” and for others, it is a new term. RegTech is short for Regulatory Technology and was designed to enhance the methods taken and management of business compliance. Companies making use of RegTech are improving the use of machine learning, blockchain, artificial intelligence, big data as well as other technologies which enable regulatory compliance for businesses. 1
Nowadays, companies are dealing with much more complex rules and regulations when it comes to compliance. And the goal of Regtech is to make this easier for companies as well as to avoid that companies get fined for not being compliant according to regulations.
There are a few RegTech categories that provide different tools to the process. Regulatory knowledge, for example, transforms the raw text of regulatory documents into actionable knowledge. Another tool is regulatory content which is a form of resources. This tool combines documents by regulators into one platform. Another tool is “containers” which holds all the company’s regulatory information including the policies and procedures. Last but not least when a company has the correct regulatory information saved in the right container, they can add more solutions to the process, for example, implementing a task in a compliant way, or assessing compliance with an obligation or control. 2
Benefits of RegTech
Accuracy: Doing a compliance process manually can lead to a few mistakes if you aren’t careful, but if you make use of technology, it is programmed in such a way as to avoid errors and create a perfect compliance process.
Better Internal Focus: The use of technology leads to better clarity inside a company. This means information is shared faster within a company and forms a stronger compliance process.
Effectiveness: Since compliance regulations change and improve on a regular basis, it is hard for companies to keep up. But if you make use of RegTech, it is a quick and easy process to adapt to new changes by the use of technology.
Risk Protection: RegTech protects internal information from risks like market abuse, cyber-attacks, fraud, etc. 3
RegTech vs. FinTech
Because a lot of RegTech products are related to financial services industries, people often think that RegTech is a form of FinTech. But for RegTech, the main element is the automation of regulations and this can apply to many different industries and not just FinTech.
RegTech is not all about technology but more about the content found in the technology. For this reason, it might be hard for Fintech industries to develop RegTech products, since they may not have the needed skills. 4
Although RegTech offers many advantages, there are some barriers that lead to RegTech not being the best solution for some companies. The accessibility of RegTech is not always easy for companies due to data access, finances and skills. For some, making use of RegTech might not always be profitable due to automation and efficiency gains that could be cancelled by the costs of increased regulatory requirements. Because RegTech is controlled by technology, legal requirements and adapted interpretations of the law is not done by humans themselves but programmed beforehand according to their judgement. This could lead to not 100% accuracy of judgement.