RegTech and the financial industry – a marriage of reason?

The increase in the frequency of systemic shocks, such as the subprime crisis (2007), has led various regulators, including European regulators, to introduce new safeguards designed to better protect financial institutions and investors. Insurance and financial products are now subject to more stringent standards and requirements: the Insurance Distribution Directive (IDD), “Solvency II” prudential standards, anti-corruption measures derived from the Sapin 2 Law, and the reporting and transparency obligations associated with the PRIIPS and MiFIR 2 regulations. Compliance with this body of regulations requires the mobilisation of significant resources, while the costs associated with these issues are soaring and can reach 15 to 20% of the operating cost base of certain banks.*

A buoyant market

RegTechs use powerful tools developed by Artificial Intelligence, biometrics, blockchain technology and data-science. The “agility” of these start-ups enables their clients to gain speed, efficiency and robustness.

They operate in different areas, such as identity management, regulatory reporting, data-risk management and data protection, transaction monitoring and compliance management.

According to KPMG, the biggest fundraising efforts involving RegTechs in Europe have concerned anti-money-laundering initiatives, compliance management and regulatory reporting, in descending order of the amounts raised.

According to the Grand View Research consultancy, the global RegTech market is expected to top $55 billion by 2025.

The French Insurance Federation (FFA) is addressing this issue via its start-up incubator “The Hub”, which hosts Stackadoc, a RegTech capable of automatically transforming legal and financial documents into structured data, without human intervention.

Nevertheless, while outsourcing certain functions meets real needs, financial institutions ultimately remain responsible for managing their risks and compliance.

*American Banker, September 07 2016 “You've Heard of Fintech, Get Ready for 'Regtech”