RegTech, a class of software applications that help businesses comply with regulations inexpensively and efficiently, has emerged as a hot topic in financial services. According to Let’s Talk Payment, the global demand for compliance, regulatory and governance software is expected to reach USD 118.7 billion by 2020. As the RegTech market continues to grow, here are the latest trends in the industry.
1) RegTech start-ups will increase
Regtech start-ups have popped up in the past five years. While many start-ups are focused on regulation technology within financial services there are several start-ups that are working on Regtech related to real estate, supply chain and product, and life sciences. In 2017, we expect to see the emergence of many regtech start-ups in areas as varied as analytics, algorithms, due diligence, fraud detection, verification of payment and authentication.
2) Rise of Regtech investment
Over the last five years, RegTech investments have more than tripled. Over the same period, investments in RegTech start-ups have grown by 38.5 percent (CAGR). In 2016, $678 million was invested in 70 companies, compared to $185 million in 32 companies in 2012. The amount invested in the regtech sector is expected to increase in 2017.
3) Use of Machine Learning
Machine learning is allowing many Regtech companies to transform regulatory practices. Usually, machines process and learn more information than human in less time, noticing red flags and trends at an earlier stage. As the data quality that must be analysed increases, systems that use machine learning will be needed for the regulatory success of companies.
4) Banks to use Regtech
RegTech is greatly improving how transaction monitoring is carried out, helping to improve the detection of terrorist financing and money laundering. As financial crimes become more sophisticated, banks will increasingly use RegTech for transaction monitoring. According to a recent research by the Institute of International Finance (II), several mid-sized banks are beginning to explore regtech and are working with start-ups to find possible solutions to different regulatory challenges
5) Governments support for Regtech
Last year 2016, the UK government budget allocated funds to support the adoption of new technologies to deliver regulatory requirements. Also, Scott Morrison, the Australian treasurer, recently said governments around the world must use regtech to reduce compliance costs on companies. In 2017, regtech will continue to gather support from governments around the world.
6) Regtech will change businesses
In his article that was published onn Forbes, John Humphries, the CEO of Risk Priorities, noted that although the Regtech market is still in its infancy and few documents exist to demonstrate return on investment (ROI), its potential is considerable. Regtech will not only continue to enable transparency and awareness across organizations but also, will positively change the compliance culture of many companies.
7) More backing for Anti-fraud Start-ups
Backing for anti-fraud start-ups has overtaken compliance-focused start-ups over the last year. Investments in firms in the anti-fraud subdivision jumped from $82.2 million in 2014 to $334.8 million in 2016. Investment in this regtech subsector will continue to increase in 2017.
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