Regtech on the rise in financial sector

Regtech - the new wave of financial regulation
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Valme Claro
Content Assistant
AccountingWEB.co.uk
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Last week Aqilla proclaimed its allegiance to Regtech, an outgrowth of financial technology movement (Fintech) where it intersects with regulation.

“Regtech”, short for “regulation technology”, was a term coined a couple of years ago by the Financial Conduct Authority. The abbreviation refers to systems designed to help banks and other financial services institutions meet their regulatory requirements and beginning something of a buzz in software circles, according to accounting software house Aqilla.

Regtech developers are focusing on compliance issues such as anti-money laundering rules, but are branching out into other areas such as tools that identify gaps rules and legislation.

“Any RegTech solution needs to be wholly trusted in regards to data flow, data retention, data use and subsequent audit. Regtech not only helps govern better a vibrant financial services sector, but also provides a fast-track route to compliance for both established companies as well the plethora of emerging Fintech startups,” Aqilla commented in an industry update on AccountingWEB.

“The basic idea is that systems effectively replace manual reporting and compliance processes for things such as KYC (Know Your Customer) and AML,” explained Aqilla director Hugh Scantlebury. “This reduces risk, should in theory be more robust and cost effective to manage and by use of highly scalable cloud based technology, it should scale as demand is applied.”

As well as the smooth interchange of data facilitated by cloud technology, Regtech demands flexible reporting to analyse big data sets and funnel their findings into formats demanded by regulators. The information can also be used to reduce operational risks and support better decision-making, according to a recent report from Deloitte.

A thriving industry

Regtech represents the convergence of new capabilities such as cloud computing and big data with increasing demands on financial institutions to capture, store and analyse their data.

According to a KMPG report, global investment in Regtech companies is accelerating, with $591m invested in 60 companies during Q2 this year, well ahead of the cumulative investment total of $678m in 2016.

“The growth had been on the back of tighter regulation which started in the banking sector with Basel II Accord back in 2004, and then extended by the Anti Money Laundering (AML) legislation in U2007, and which has since the ‘banking crisis’ seen even stricter compliance controls being demonstrated by banks, but which in recent years has spread to broking, asset management, insurance and emerging third party payment platforms,” Aqilla’s Hugh Scantlebury said.

Regtech is likely to evolve around different services to address specific needs, ranging from alerting systems to warn financial institutions when new rules come into force to due diligence support for finance providers when they screen potential customers.

“[Regtech] is more about accountants in business than accountants in practice, bit they too have their own compliance processes and standards. It’s just normally done on a much smaller scale.”

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