What Is RegTech?

The term RegTech was first coined by the UK’s Financial Conduct Authority(FCA) in 2015 who called it: “A subset of fintech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities.” In simple terms it refers to any technology that ensures companies comply with their regulatory requirements.

An increasingly complex regulatory environment has led to an increase in compliance costs. Regulators have also issued heavy fines for non-compliance. As per CB Insights, firms have paid $321 billion in fines since the 2008 financial crisis. In this context, firms are looking for solutions that help them reduce the risk of non-compliance.

RegTech is gaining traction following the implementation of the European Parliament’s MiFID II legislation in January 2018. This regulation aimed to provide uniformity among investment services within the 31-member states of the European Economic Area (EEA). Several other regulations have also positively impacted the field such as Basel II, Solvency II, PSD II, the General Data Protection Regulation (GDPR), the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In the case of MiFID II, the published legislation has complex implications, all of which need to be managed and executed by the compliance team. As a result, companies explore external options to help automate and simplify compliance. This fuelled the rise of RegTech companies. According to FinTech Global, investment in RegTech firms that addressed MiFID II totalled $378.5 million between 2013 and 2017.