Meet regtech, the fastest growing segment of financial technology
As the rise of protectionist and nationalist sentiments fragment international trade regulations, regulatory technology, or regtech, is becoming a new darling of the technology industry, as businesses demand automated solutions to meet onerous regulatory demands.
“A large institution now has to operate with hundreds of different regulatory frameworks,” said Tim Hwang, chief executive of FiscalNote, a New York-based regtech firm, at the Rise conference in Hong Kong. “So what we are doing is pulling together all those laws and regulations, all those court cases, all those statutory changes into one single platform.”
Regtech is emerging as one of the buzz words in technology, along with the rise of fintech, as financial technology is called. The market for regtech solutions will grow to around US$120 billion by 2020, according to Reuters projection. Venture capitalists have invested US$2.3 billion in regtech since 2012, according to data by CB Insights. Funding volume is expected to have dropped 2 per cent to US$576 last year, but activity is expected to grow 15 per cent to 90 deals, according to the data.
Financial hubs worldwide are rushing to adopt both fintech and regtech. Even Hong Kong’s Securities & Futures Commission (SFC) has launched a pilot project with 20 banks to monitor and detect systemic risk using regtech last November.
The emergence of regtech can benefit both the established institutions and the disruptive fintech companies in finance, said Duff & Phelps’ managing director John Schrader.
Regtech “helps financial institutions to handle fragmented regulatory regimes, evolving changes, the obstacles that they historically had with large, established, cumbersome systems,” Schrader said.
He said it also helps bridge understanding between fintech startups and regulators as regulators are still unfamiliar with many of the new fintech products on the market.
At a recent seminar in the US, only three regulators present at the event understood machine learning and other types of emerging technology, he said. Meanwhile, many regulators in the world are embracing regtech because regtech could potentially liberate them from “spending 75 per cent of their time doing reconciliation than actually setting up intelligent policies,” he said.