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RegTech in Banking: Exploring Technologies & Solutions

Regtech in banking is set to play a major role in the financial services industry this year, posing challenges and opportunities for market participants

Updated: June 27, 2024 10 mins read Published: March 13, 2024

We’ve only just started 2024 and the year is already set to be an exciting one for the finance industry as new technologies assert a prominent role. AI is set for increased development in insurance and loans processing, and open banking is likely to become more widely adopted, sparking major changes to both the financial landscape and consumer behavior.

As these and other technologies are adopted by companies working in the financial services industry, the benefits they offer will also raise significant challenges regarding legislative and regulatory compliance. As such, any company working in this industry needs to lean on the expertise of solutions providers working with regtech in finance.

Technology solutions aimed at helping companies in the financial services industry comply with government regulations are not a new concept, but one that has grown in scope and efficacy in recent years as regtech. As new technologies are rapidly deployed on the market, making it difficult for companies to adapt to changing circumstances, regtech becomes ever more essential.

If you’re asking yourself, ‘What is reg tech in banking?’ or if you have an awareness of the subject and want to learn more, then read on. The Intellias team has provided a considerable degree of support to companies looking for regtech solutions across various parts of the financial services industry. Let us share our experience with you.

What is Regtech in Banking?

Regulatory technology, more commonly referred to as regtech, encompasses the combined usage of technologies that help companies working in the finance industry ensure that they are able to adhere to government regulations and legislation. Various technologies that you have likely heard of are utilized to achieve this goal, including AI and machine learning, blockchain, language processing, and others. There isn’t one single technology responsible for allowing regtech to function; instead, it’s a collection of various tools.

The scale of the regtech sector has increased in tandem with the exponentially growing number of legislative and regulatory factors affecting financial services companies. In the United States, for example, many federal agencies cover finance to some degree, meaning that almost every institution from the Federal Reserve to the Commodity Futures Trading Commission exercises at least some influence over regulatory technologies. The same situation exists in Europe, where the European Commission regularly issues updated regulations; the European MiFID II alone, for exanple, constitutes well over 30,000 pages, a figure that’s not outside the norm.

As such Regtech is big business, and its current market size of $83 billion is predicted to increase to $207 billion by 2028. It is a rare example of an industry that is well protected from economic shock, as where there is technological innovation there will be new regulations, and thus, regtech. This makes understanding regtech solutions in the banking sector crucial for all industry participants.

The History of Regtech

The 1990s and early 2000s saw the introduction of new technology that could track and assess the risks associated with particular rules or processes, which was known as RegTech 1.0. This served as the foundation of regtech as it is today, but the options bankers and financiers had at their disposal back then were fairly limited. It would take time for regtech software and associated tools to develop, which became more evident in the mid 2000s as the internet became established in business and cultural life.

By that point, Regtech 2.0 had begun to kick in, which is where much of the technology we associate with the concept originates from. The need for technological tools dedicated to ensuring compliance in the financial services industry grew exponentially during this period, particularly during and after the financial crisis and the Great Recession of 2008. Back then, most banks would have to account for ten regulatory changes on a daily basis.

By 2017, that figure had risen to 185. Since then a growing number of companies and startups have focused on providing regtech solutions to financial institutions needing to stay ahead of regulatory updates. The next state in regtech’s development, Regtech 3.0, is now set to take over thanks to its change of focus from “know your customer” to “know your data.” This changing of the guard has been made possible by the development of technological innovations like AI and machine learning, which have greatly improved the analysis of financial data.

Regtech isn’t the only major emerging technology that looks set to play a major role in 2024

Find out more here

early 2000s saw the introduction of new technology

What Are the Differences Between Regtech, Fintech and Suptech?

Regtech, fintech, and suptech are three of the most important technologies driving cutting-edge developments in the banking and financial services sectors. Given the relative similarities in their names, they are often confused for one another.

They are related to each other to varying degrees; however, each of them has a specific purpose and cannot be applied as ‘jack of all trade’ tools. Let’s examine the definitions of each of them in turn.

Regtech

Regtech is focused solely on helping financial institutions and banks adhere to regulatory requirements. Any product developed by a regtech startup or company is highly focused on that issue to the exclusion of all others. Regtech products are like scalpels; precise, delicate, the ideal tool to use for a complex problem like regulatory compiance.

Fintech

Fintech, which is short for financial technology, refers to new technology designed to enhance and automate the provision and use of financial services. Fintech encompasses a broad range of technological approaches to personal and commercial finance. It extends beyond the introduction of digital currency and double-entry accounting to any improvement in how people do finance-focused business.

Suptech

Suptech stands for supervisory technology, and as the name suggests, it refers to tools that help financial authorities manage regulatory compliance. They’re different from regtech solutions in the banking sector as they’re used by supervisory bodies, and not banking or financial companies. Suptech is for entities that enforce the laws; regtech is for companies that need to adhere to the law.

regtech solutions in the banking sector

How is Regtech Utilized in the Financial Services Industry?

Regtech solutions are focused on ensuring that companies are able to properly adhere to government regulations. This is achieved in various ways to meet the specific demands of companies and their operations. Here are some of the most common examples.

Regulatory Compliance

This core competency involves companies collecting personal information from multiple sources within an organisation to create general reports for asset management to meet compliance standards. Big data analytics, cloud data storage, and real-time reporting are all frequently used to carry out this process.

Risk Management

Failure to properly install, maintain or protect technology entails a significant risk of failing regulatory compliance. As such, regtech often focuses on risk management by integrating cutting-edge technology into every technical service and software that a bank, credit union, or wealth management company utilizes. This is achieved via automating compliance and then compiling the information gathered to create risk assessments metrics.

Regulatory Reporting

Regtech consulting companies also need to provide regulatory reporting, which notifies banks and other financial institutions of changes in real-time regulatory reporting, enabling them to fulfil their reporting requirements and maintain compliance on an ongoing basis. Financial organizations can significantly reduce their costs (and time) by automating the data collection process to help support this process.

Compliance Execution

Compliance execution is a crucial aspect of regtech solutions in the banking sector. During this process, firms can apply solutions to either carry out a task in a compliant manner or evaluate compliance after an action has taken place. The latter option entails an obligation to take action if non-compliant processes were identified.

Transaction Management

Regtechs consultants monitor and analyze transactions in real-time to identify potentially fraudulent operations and suspicious activity. They do this by utilizing distributed ledger technology and artificial intelligence. Companies working in regtech are experiencing new challenges in this area due to peer-to-peer (P2P) platforms and cryptocurrencies, which are increasingly popular alternative payment methods.

popular alternative payment methods

We spoke with the head of data transformation and innovation at HSBC to get his perspective on regtech

Find out more

What Are the Benefits of Adopting Regtech?

The most immediate and apparent benefit of using regtech software is that you’re fully capable of adhering to the various government regulations and legislation that cover your company’s operations. That’s the most obvious one, one that’s worth reemphasizing.

There’s not going to be a sudden cut in the amount of regulation banks and financial institutions are subject to; the trend is only upwards. As such it’s vitally important that you do not get left behind during this process.

There are other benefits to using regtech solutions, though, and the range of their impact can cover the entirety of your company’s operations. If you’re still unconvinced about the benefits of using regtech, then examine some of the options below. Consider how your organization could benefit from them.

  • Regtech enables businesses to access improved data analysis. The results can be used to identify trends and provide real-time reporting. This allows you to decide on regulatory compliance strategies with greater knowledge, and apply useful data to other parts of your company’s operations.
  • Compliance is important to every department at your business. Regtech can create a greater sense of corporate cohesion and transparency. The ultimate purpose might be to ensure compliance, but regtech also provides greater insight into your company’s internal processes as well.
  • Regtech can help businesses create more individualized services, offering customers greater ease of service by automating compliance processes. This also helps you better understand their interests and behavior.
  • Cost savings are an immediate benefit of regtech as regulatory data can be collected and analysed much more efficiently, saving labour, time and money. A good example of this is know your customer compliance checks.
  • Regtech products allow your company to break free from restrictive enterprise risk management systems and provide you with development opportunities and flexibility. This in turn allows your team to scale sustainably.
  • Increased regulatory compliance has the knock-on effect of strengthening a company’s security protocols. While the most obvious benefit of this is better compliance, it also better protects your company from cyberattacks and other criminal activities.

Cost savings are an immediate benefit

What Challenges Can Arise When Implementing Regtech?

Implementing any new technology can be a difficult process and regtech is no exception. That’s why it’s important to engage the services of highly qualified consultants who have experience in working with regtech, compliance management software, and the other key factors that feature during the onboarding process.

The Intellias team understands the importance of an efficient onboarding process; we’ve worked with a number of clients in various sectors of the financial services industry to help them implement regtech. As part of that process, we’ve encountered and resolved several onboarding issues that our clients have experienced. Here are some of the most common.

Legacy Systems

One recurring issue we have encountered is integrating regtech solutions with legacy systems. Companies with outdated digital infrastructure already experience significant technical problems; grafting on new tech presents more challenges. The solution is to carry out a comprehensive technical audit and update everything required.

Change Resistance

It’s not just legacy systems that pose a challenge to regtech onboarding; cultural opposition within organizations can be problematic as well. Financial institutions that are adopting regtech software sometimes require a cultural mindset shift to ensure they are working with compliance at the forefront of their processes. This requires employee training and management consultations.

Security Challenges

By their very nature, regtech solutions collect large amounts of sensitive company data, and during the onboarding process, this information can be vulnerable, especially if the client company relies on legacy systems. Companies providing onboarding support have to provide the highest quality security expertise. This must also be accompanied by constant risk monitoring and rapid support to address threats if they arise.

Insights Extraction

It’s not unusual for different departments of a financial institution to use different methodologies when extracting extra data-driven insights. This can make it challenging to fully implement regtech software, which benefits from a unified corporate data structure. The best way to achieve regtech onboarding is to ensure the client company works according to one data standard.

The insurance industry is set for increased technological development in 2024 as well

Find out how

Work with Intellias to Implement Regtech at Your Company

Regtech is one of the most important issues that banking and financial institutions have to contend with right now. Regulatory compliance is going to consistently increase in volume and complexity, and companies that fail to prepare properly put themselves at risk of legal action and worse.

Take action, insure your company against current and future regulatory issues. Contact the Intellias team today to learn more about our regtech expertise.

Intellias is a trustworthy technology partner for digital natives and elite organisations, assisting them in quickening the pace of their long-term digital transformation. We have worked with numerous organisations to help them successfully adopt regtech software and solutions, which allows us to provide a wealth of experience and technical expertise to new clients. It’s not just the variety of our clients that sets us apart; we also provide a wide range of services to organisations in the financial services industry, creating a tailor-made client experience.

If you want to learn more about regtech in banking services and how we can support your company during the adoption and onboarding process then send us a message via the contact form; one of our financial services experts will get in touch. You can also check out our blog, where we regularly publish articles on various subjects in the banking and financial services industries. In the meantime, let us know what regtech issues you’re currently experiencing; we will do everything possible to support you.

FAQ

Regtech technologies encompass the combined use of tools to help companies working in the finance industry ensure that they are able to adhere togovernment regulations and legislation. Various technologies that you have likely heard of are utilised to achieve this goal, including AI and machine learning, blockchain, language processing, and others.
Fintech refers to new technology designed to enhance and automate the provision and use of financial services, whereas suptech stands for supervisory technology. Fintech is a general term, and suptech is used by organisations that regulate the financial sector, not those that participate in it.
Regtech works in a number of ways, covering regulatory compliance, corporate risk management, regulatory reporting, compliance execution, and compliance management. These processes affect most, if not all, aspects of an organisation’s functioning.
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