Financial institutions are under constant pressure to meet constantly growing risk management requirements and higher regulatory demands. To alleviate these increasing regulatory requirements, new technology has emerged. Indeed, RegTech has caused quite a buzz in the financial industry.
But is it reserved only for financial institutions and banking institutions? Not necessarily. Given its characteristics and advantages, RegTech can prove itself more than useful in several other industries. Which sectors and why? To answer this question, we must first take a closer look at what exactly RegTech is.
What Is RegTech?
RegTech, otherwise known as regulatory technology, is an innovative sector of FinTech that utilizes the latest data-driven technology solutions, such as artificial intelligence (AI) and machine learning (ML), to address and enhance regulatory compliance and risk management within various business sectors.
RegTech aims to provide companies with technology-driven tools and applications to process and automate regulatory and compliance requirements, enhancing efficiency, reducing costs and time, and streamlining operations. Therefore, when implemented correctly, regulatory technology tools can become an invaluable ally to businesses facing high regulatory requirements and risk management demands.
RegTech applications are most commonly used in the financial sector, but given their broad scope, they can also be used within such industries as healthcare, commerce, legislation, or quality assurance.
RegTech Use Cases
The primary purpose of regulatory technology is to enhance how businesses address the increasingly complex regulatory and compliance requirements. The question is how? Given the broad scope of compliance, RegTech can help achieve it in numerous ways.
The most common RegTech use cases include the following:
- Regulatory compliance management. Regulatory compliance management refers to identifying and addressing existing regulations and standards to comply with regulatory requirements. RegTech helps identify them much faster, ensuring the company stays compliant with all regulatory requirements at all times.
- Data integration. Through data integration, organizations can collect and transfer data across multiple systems. RegTech helps automate these processes while increasing their security, reducing the time required for data transfers, and improving the workflow within the organization.
- Digital identity verification and management. Digital identity verification has become a vital part of any organization’s operations. However, while it can significantly speed up all customer-related processes, it also involves a high risk of fraud or identity theft. RegTech helps organizations collect, verify, and safely store the acquired customer data, protecting both the business and its customers from associated risks.
- Transaction monitoring and anti-money laundering. Any organization must collect and store information about any suspicious payment activity. RegTech applications can screen and collect such data automatically, ensuring the company complies with all anti-money laundering regulations.
- Market intelligence. Companies across various industries must stay on top of the ever-changing regulatory environment. RegTech can help with that. Instead of manually checking and verifying all market and regulatory trends, RegTech employs automation technologies to monitor and collect the necessary data, ensuring that an organization always complies with the ever-changing rules and regulations.
These are only a few of RegTech’s use cases. Other popular uses of regulatory technology include regulatory information sharing, consumer protection, cryptocurrency regulation, and fraud detention. Also, due to its data-driven nature, RegTech can be extremely helpful in risk analysis and management.
Who Uses RegTech?
As covered then, RegTech offers a wide range of possible applications. Given that, it can be utilized across multiple industries, especially those that come with complex and often-changing regulatory requirements.
RegTech In Banking and Finance
The industry in which regulatory technology is the most prevalent is the financial sector. That shouldn’t surprise, as the financial services industry has experienced an over 500 percent increase in regulatory and compliance changes since 2008.
Typically, banks and other financial institutions use RegTech software as SaaS (software-as-a-service) to ensure they comply with financial regulatory compliance requirements of the leading US governing bodies, such as the Financial Industry Regulatory Authority (FIRA) and US Securities and Exchange Commission (SEC).
The two specific areas where financial institutions can find RegTech incredibly helpful are verification management and transaction monitoring.
The first is vital for complying with the Know-Your-Customer (KYC), with the latter being the key to meeting strict anti-money-laundering (AML) compliance requirements. Using its data-driven technology, RegTech software can help verify customers and monitor transactions, helping identify and eliminate potential fraud risks.
Other RegTech Applications and Industries
Due to its broad scope, regulatory technology’s applicability goes far beyond the banking sector. One of the industries where RegTech plays an integral role in meeting compliance requirements is cybersecurity.
Companies in the cybersecurity industry, such as antivirus software or VPN providers, face a rapidly-changing regulatory environment. Using RegTech software, such services can ensure they stay on top of their compliance requirements, especially when transferring and storing sensitive data.
Another excellent example of an industry that can benefit from RegTech applications is healthcare. Hospitals, private clinics, pharmacies, etc., all store and transfer sensitive patient data daily. To stay compliant, healthcare providers must meet the complex and strict Health Insurance Portability and Accountability Act (HIPAA) requirements. This is the area where RegTech excels, ensuring that a healthcare organization protects its patients’ data and complies with all the regulatory demands of HIPAA.
RegTech has also proven its value in the turbulent crypto sector, which has been experiencing massive turmoils recently. And with the US government taking more interest in the cryptocurrency market, institutions dealing with crypto need to comply with the increasing number of complex regulatory requirements. Again, this is the field where RegTech can prove itself invaluable.
Key Takeaways
Although RegTech is still a relatively new sector, regulatory technology tools are widely accepted and used by organizations across multiple industries, especially those with high regulatory compliance requirements, such as finance, healthcare, cybersecurity, or crypto.
However, considering the growing importance of data management followed by the increasing regulatory demands, it’s only a matter of time before RegTech solutions spread across even more sectors.
That said, it’s likely that it will soon become the case of not who uses RegTech, but rather who’s yet to implement it. Investing in RegTech now can grant an organization a significant competitive advantage, ensuring the company stays ahead of its competitors and is on top of new regulations.