As a CFO overseeing a multinational financial institution, Riya Shrivastava* faces relentless challenges. Last year, her company incurred millions in penalties due to overlooked regulatory updates in one jurisdiction. The manual KYC processes further dragged down customer onboarding, frustrating clients and losing revenue opportunities. Meanwhile, cybersecurity threats are escalating, and her teams are struggling to adapt legacy systems to meet evolving compliance demands.

Riya* often finds herself questioning how her organization can keep pace with the ever-changing regulatory landscape while managing operational costs and safeguarding client trust. The answer, she discovers, lies in RegTech – a transformative approach to regulatory compliance that promises to not only alleviate these pain points but also position her company for long-term resilience and efficiency.

This growing complexity and the need for a robust solution in today’s fast-changing regulatory landscape bring us to the concept of RegTech.

What is RegTech?

RegTech (Regulatory Technology) refers to the use of advanced technology to help businesses, particularly in the financial services industry, comply with regulatory requirements more efficiently and effectively. It is designed to automate, streamline, and improve the process of adhering to complex regulations, reducing the risks of non-compliance and regulatory penalties.

Key Technologies used in RegTech:

  • AI and machine learning for real-time risk detection and learning from historical data.
  • NLP (Natural Language Processing) for scanning and analyzing unstructured data sources like news and media.
  • RPA (Robotic Process Automation) for automating repetitive, rule-based compliance tasks.
  • Big data analytics to process and analyze large volumes of financial data.
  • Blockchain for decentralized, tamper-proof KYC records (emerging technology).
  • Cloud computing for scalable and flexible compliance infrastructure.
  • Regulatory reporting automation for generating and submitting required compliance documents.

Why do we need RegTech?

Huge Economic/Financial Burden:

  • Global regulatory compliance spending will increase from just under $278 billion to more than $316 billion over the next 5 years
  • According to estimates, red tape costs Australia AU$176 billion (more than US$128 billion) annually, or 11% of GDP, which equates to AU$19,300 (US$14,060) per household. Additionally, smaller businesses in Canada pay five times as much for government regulation as do larger ones.

Challenges Faced by FIs:

  • Regulators modifying and making regular additions to financial regulations
  • Complexities of financial regulations makes it difficult
  • High Cost to comply with constantly changing regulations
  • High Penalties on Non-compliance with regulations
  • Incompatible Systems and Absence of standardized approach
  • Lack of System Integration
  • Constraints of Legacy systems and insufficient automation and digitization

Business Problems:

1. High Compliance Costs

  • Challenge: Compliance requires significant investment in manpower, resources, and time, especially for large institutions managing regulations across multiple jurisdictions.
  • RegTech Solution: Automates repetitive compliance tasks like KYC and AML checks, reducing the reliance on manual processes. This automation lowers operational costs, improves efficiency, and redirects resources toward more strategic activities.

2. Evolving Regulatory Landscape

  • Challenge: Financial regulations frequently change, creating a need for constant updates to compliance programs, systems, and employee training.
  • RegTech Solution: Many RegTech solutions use machine learning to monitor regulatory changes and automatically update compliance processes. Real-time monitoring keeps institutions aligned with the latest regulations and minimizes the risk of non-compliance.

3. AML (Anti-Money Laundering) and Fraud Detection

  • Challenge: Traditional fraud detection and AML systems often struggle to detect sophisticated money laundering techniques and are prone to generating false positives, leading to a costly and inefficient process.
  • RegTech Solution: Employs AI and machine learning to analyze patterns, identify suspicious activities, and filter out false positives. Advanced analytics enhance transaction monitoring, allowing financial institutions to better detect and respond to illicit activities.

4. Data Privacy and Protection

  • Challenge: Financial institutions handle large amounts of sensitive customer data, making compliance with data privacy regulations (like GDPR or CCPA) complex and essential to avoid penalties.
  • RegTech Solution: RegTech solutions use encryption, secure storage, and data anonymization to protect sensitive data. They also provide audit trails and real-time monitoring to ensure compliance with data privacy regulations.

5. Inefficient KYC and Customer Onboarding Processes

  • Challenge: KYC (Know Your Customer) processes are often manual, time-consuming, and prone to errors, resulting in slow customer onboarding and a poor user experience.
  • RegTech Solution: Automates identity verification and risk assessment using data integration and AI, speeding up the onboarding process and ensuring compliance with KYC regulations. Faster onboarding improves customer experience and reduces drop-off rates.

6. Regulatory Reporting Complexity

  • Challenge: Regulatory reporting requirements are complex and vary across regions. Preparing and submitting accurate reports is labor-intensive, prone to human error, and requires significant time and resources.
  • RegTech Solution: Automated reporting tools aggregate and analyze data across departments, preparing and submitting reports in compliance with regulatory standards. This streamlines the reporting process, reducing errors and ensuring timely submissions.

7. Increasing Cybersecurity Risks

  • Challenge: Financial institutions face rising cybersecurity threats, making it essential to safeguard client data and transactions against breaches and cyber-attacks.
  • RegTech Solution: Some RegTech solutions include advanced cybersecurity features such as real-time threat monitoring, automated incident response, and AI-based anomaly detection to improve cybersecurity resilience and comply with data security regulations.

Along with these RegTech is used to solve multiple business problems not only for financial institutions but also for organizations in other domains such as Healthcare, Education, Aviation, Retail and E-commerce and many more.

Benefits of RegTech:

  1. Improved Efficiency: Automating repetitive, time-consuming compliance tasks.
  2. Reduced Risk: Enhanced risk detection capabilities, leading to fewer compliance breaches and penalties.
  3. Cost Savings: Reducing the cost of compliance through automation and streamlined processes.
  4. Faster Compliance: Quick adaptation to regulatory changes and reduced time to implement new rules.
  5. Scalability: Ability to handle large volumes of data and transactions across multiple jurisdictions.

Recent Examples of RegTech Effectively Saving Cost:

  • By automating resource-intensive processes like Know Your Customer (KYC) checks, RegTech solutions can lower compliance costs. By 2024, for instance, it is anticipated that the application of AI to KYC procedures will result in savings of almost $1 billion worldwide, a 690% increase.
  • A unified regulatory reporting platform in Austria has helped banks save more than 30% on compliance costs. By integrating data sharing across institutions, this system drastically reduces administrative burden.

RegTech is revolutionizing the compliance landscape, transforming outdated, manual processes into proactive, data-driven systems that streamline operations, enhance cybersecurity, and foster real-time adaptability. With these advancements, industries can meet complex regulatory demands more efficiently, paving the way for greater resilience and foresight in an evolving regulatory world.

For CFOs like Riya* and organizations working in a fast-changing regulatory environment, RegTech is proving to be a key technology to deal with multiple challenges and complexities.

Disclaimer – Riya Srivastava is a fictional character created to show the problems faced by CFOs of multinational financial organizations in today’s business environment.