REGTECH

(REGULATORY
TECHNOLOGY)
INTRODUCTION
 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.” 
 RegTech (Regulatory Technology) is the application of
emerging technology to improve the way businesses
manage regulatory compliance. Though relatively young,
RegTech is maturing rapidly.
INTRODUCTION
 It is an industry that offers technological solutions to the
challenges of companies from the economy and
regulations. One of its main goals is to increase
transparency and consistency. Regtech conducts the
in-house compliance processes, audits, and risk
workflows.

 The example of regtech is the electronic Know Your

Customer (eKYC) process by which banks verify the
identities of the people who open new accounts
digitally. This KYC process is a major part of the
banking regulations.
GROWTH OF REGTECH
 Regtech's global market size is expected to grow from
US$5.46bn globally in 2019 to US$28.33bn by 2027,
with spending estimated to make up more than 50% of
global compliance budgets by 2026
APPLICATIONS OF REGTECH IN THE
FINANCIAL INDUSTRY
 Identity Verification and Management
 Regulatory Compliance and Change Management

 Regulatory Reporting and Case Management

 Risk Analysis and Management

 Transaction Monitoring and Screening

 Anti-Money Laundering Compliance and Detection

 Fraud Detection and Prevention

 (https://www.unit21.ai/blog/regtech-use-cases)
LEADING COMPANIES IN THE
REGTECH MARKET
 ACTICO GmbH
 Acuant Inc.

 Ascent Technologies, Inc.

 Broadridge Financial Solutions Inc.

 ComplyAdvantage

 Deloitte Touche Tohmatsu Limited

 International Business Machines Corporation (IBM)

 Jumio Corporation

 London Stock Exchange Group plc

 MetricStream Inc.

(https://www.imarcgroup.com/regtech-companies)
REGTECH COMPANIES
 Regtech companies are important in preventing financial
crimes as they provide financial institutions with the
tools and technology necessary to detect and prevent
financial crimes while also ensuring compliance with
regulations and working closely with regulators.
 RegTech companies are now engaging machine
learning, natural language processing, blockchain,
AI, and other technologies in order to bring the power of
digital transformation to the world of regulatory
compliance.
KEY REGULATORY CHALLENGES
 Compliance: The biggest challenge for the regulatory
industry is the compliance burden. In addition to that, the
cost of compliance is also very high. Many businesses
struggle to meet the compliance requirements of the
various regulations and laws, which results in the loss of
revenue and even the risk of fines and penalties.
 Efficiency: As regulations increase, the number of
stakeholders involved in the process increases. This, in
turn, increases the time taken to address compliance
issues and hence the cost.
KEY REGULATORY CHALLENGES
(CONT.)
 Quality Assurance: As regulations become more
complex, it becomes harder for businesses to ensure that
their products and services meet the quality standards set
by regulators. This is because it is very difficult to keep
track of the different requirements and their implications.
 Cybersecurity: Cybersecurity has become a critical
issue for the entire global economy. As the cyber threats
grow, the regulatory industry has to address them and
keep the risks under control.
KEY REGULATORY CHALLENGES
(CONT.)
 Risk Analysis: Risk analysis is another critical issue that
needs to be addressed by the regulatory industry. As the
regulatory environment becomes more complex, the
risks involved in the business also increase. Therefore,
companies must address these risks.
 Monitoring: Manual monitoring is not the best way to
monitor the regulatory environment. This, in turn,
increases the risk of violations. Therefore, it is essential
to have a monitoring system to monitor the risks in real-
time and address them immediately.
REGTECH STARTUPS & COMPANIES
Chainalysis
 Chainlysis is a leading blockchain-based company
focusing on investigation, compliance and risk
management tools with an aim to stamp out money
laundering, fraud and compliance violations in the
cryptocurrency sector.
 It has helped several digital payments companies like
Gemini, Nets, etc., validate Bitcoin transactions and
comply with federal regulations.
REGTECH STARTUPS & COMPANIES
Hummingbird
 Boasting itself as a CRM for compliance and risk teams,
Hummingbird offers an anti-money laundering platform
to banks, fintech, lending and credit companies.
 The company offers a niche CRM helping compliance
and risk teams get more work done in a systematic,
automated, and more graphic manner to help AML crime
fighters catch financial criminals sooner and on a wider
scale.
REGTECH STARTUPS & COMPANIES
Sift Science
 Sift uses AI, ML, and big data to help companies detect
fraud, delete fake accounts and identify money
laundering.
 In order to give clients a better idea of who is making a
payment or abusing the system, the company uses
machine learning to assign “SiftScore” to each user.
FUTURE OF REGTECH

These technologies will help:

 Reduce non-compliance fines that have crossed over 
$200 billion since 2008,
 Comply with the dynamic regulatory landscape,

 Transform the way regulatory landscape work.

In the future, there is no doubt that regtech companies will

continue to grow and the field will only get more
complex and diverse.
EVOLUTION OF REGTECH
 Since its inception, RegTech has evolved and
transformed rapidly. According to CB Insights, there are
four key phases that showcase how RegTech solutions
have changed over time(4 Phases):

1. Manual — This initial stage of RegTech involved

manually collecting and storing data. These basic
reporting functions enabled compliance teams to manage
and store data in programs like Microsoft Excel®. Many
organizations have used these tools to streamline
auditing, reporting, and reduce errors.
EVOLUTION OF REGTECH (CONT.)
2. Workflow Automation — As software matures to
include workflows and automation around regulatory
and compliance issues, the second phase of RegTech was
formed. In the workflow automation phase, financial
services organizations began using software for
regulatory reporting, automating audit trails and
compliance tasks. This level of automation reduces
manual intervention and helps meet compliance and
regulatory expectations.
EVOLUTION OF REGTECH (CONT.)
3. Continuous Monitoring — The continuous monitoring
phase involves data analytics, process automation and
back office integrations. With continuous monitoring,
inconsistencies and compliance gaps are quickly noticed
and fixed. This enables financial organizations to reduce
risk and exposure to breaches, among other security
threats.
EVOLUTION OF REGTECH (CONT.)
4. Predictive analytics — The future of RegTech is in new
technologies, including advanced analytics, cognitive
computing, the cloud, artificial intelligence and machine
learning. Organizations are beginning to leverage
artificial intelligence for risk identification, compliance
intelligence, identity management and background
screening. In addition, artificial intelligence and Big
Data tools are being used to monitor pre-and post-trade
compliance; deliver faster insights; increase efficiencies
in compliance processes through automation, while
reducing costs and offering foresight into emerging risk
issues.
WHAT IS A REGULATORY SANDBOX?
 Regulatory sandbox refers to live testing of new products or
services in a controlled regulatory environment. It acts as a
"safe space" for business as the regulators may or may not
permit certain relaxations for the limited purpose of testing. 

The sandbox allows the regulator, the innovators, the
financial service providers and the customers to conduct
field tests to collect evidence on the benefits and risks of
new financial innovations, while carefully monitoring and
containing their risks. 
Entities are allowed to experiment with fintech solutions in
a live environment and on a limited set of real users for a
limited time frame.
BENEFITS OF RS
 Regulatory sandbox can potentially bring significant benefits.
 Firstly, regulators obtain first-hand empirical evidence on the benefits and
risks of emerging technologies and their implications, enabling them to take
a considered view on the regulatory changes or new regulations that may be
needed to support useful innovation, while containing the attendant risks. 

Incumbent financial service providers, including banks, also improve their
understanding of how new financial technologies might work, which helps
them to appropriately integrate such new technologies with their business
plans.

Innovators and fintech companies can improve their understanding of
regulations that govern their offerings and shape their products accordingly.
 Second, users of a sandbox can test the product’s
viability without the need for a larger and more
expensive roll-out. If the product appears to have the
potential to be successful, the product might then be
authorised and brought to the broader market more
quickly.
Third, fintechs provide solutions that can further
financial inclusion in a significant way. Areas that can
potentially get a thrust from the sandbox include
microfinance, innovative small savings and micro-
insurance products, remittances, mobile banking and
other digital payments.
 In India, financial regulators such as the Reserve Bank of
India, Securities and Exchange Board of India, Insurance
Regulatory and Development Authority and the International
Financial Services Centres Authority run their own sandboxes.
The RBI sandbox scheme, introduced in 2019, is based on
thematic cohorts. The first four cohorts were on retail
payments, cross-border payments, MSME lending, and
prevention of financial frauds, respectively.
 In September, the RBI announced the fifth cohort and based
on feedback received from various stakeholders, it has kept
the theme neutral. Innovative products, services or
technologies cutting across various functions in RBI’s
regulatory domain would be eligible to apply.
 The central bank has had a few successful cases under its
sandbox initiative. Meanwhile, markets regulator SEBI’s
regulatory sandbox framework has remained a slow
starter. Since 2020 when the framework was introduced,
SEBI has received 10 applications for its approval. Of
this, three have been rejected, five withdrawn, one under
process, and one approved.