Getting to the heart of the matter – the increasing influence of RegTech

Written on
byMartin Roe

After the last financial crisis, the Financial Services sector had to dust itself down and redouble efforts to become nimbler, faster, more efficient and importantly, increasingly vigilant. As a response, many institutions, large and small, had already set out on the path of digital transformation but with the devastating arrival of Covid-19, the pace of digital disruption that was already taking place gathered a fresh impetus to try to meet the challenges individuals and societies are now facing.

The scale of financial destabilisation and how that will play out in any recovery scenario is going to weigh heavy for some time to come – as outlined in the latest International Monetary Fund Global Financial Stability Report. For financial institutions this continues to put pressure on them successfully navigating continued complex regulatory challenges – the number of regulatory and policy updates has accelerated – it’s estimated as the pandemic took hold there were over 1,300 regulatory changes globally in March alone.

The shift to digital has changed the way many firms go to market – the transformation for those leading Risk functions brings with it a drive to great efficiencies to meet cost pressures while maintaining a tight grip on all evolving risk and compliance factors. The crisis is proving to be an inflection point for firms to adopt and embrace RegTech solutions to help them cope with rapid operational change, to ensure that better customer outcomes are met (including those with vulnerabilities) as well as providing insights into the optimal approaches and actions to take.  

A deeper understanding

But what exactly do we mean by RegTech? You could think of it as the younger sibling of FinTech – at heart being a technology that facilitates compliance with current or future regulatory requirements. The focus of RegTech covers risk and compliance management, identity management, transaction monitoring and regulatory insight, many of which harness the power new technologies such as Artificial Intelligence (AI), Machine Learning (ML) and Natural Language Processing (NLP). It is forecast to grow to a value of over £42bn by 2025, with a Compound Annual Growth Rate of 52.8% over that period.

Firms are increasingly seeing that these technologies are less a threat to jobs but instead cognitive technology that is augmenting human decision making. A recent Deloitte study, The Future of Risk, highlights this as one of the game changers on the risk landscape, but also highlights on of the key themes around the adoption of new tech, that where innovation leads regulation follows.

Through the regulatory lens

Indeed, in the UK the crisis has put the onus on regulatory bodies such as the Financial Conduct Authority (FCA) so they can look to better understand how regulation needs to evolve to help support better customer outcomes. This is nothing new for the FCA, which has long supported the potential that RegTech provides financial services institutions to meet their obligations.

It was as far back as 2015 when the FCA opened up a call for inputs across businesses to better encourage the development and adoption of RegTech. Over the subsequent years it has helped RegTech developers test products and services via its ‘regulatory sandbox’, and more recently around three use cases related to Covid-19:

  1. Detecting and preventing fraud scams.
  2. Supporting the financial resilience of vulnerable customers.
  3. Improving access to finance for small to medium-sized enterprises.


The FCA’s RegTech team highlighted earlier in the summer that Covid-19 provided a fresh opportunity for RegTech businesses to demonstrate their value and usefulness to the FS sector.

Francesca Hopwood Road, who leads the FCA’s RegTech and Advanced Analytics team, points out: “The key potentials of RegTech include its ability to automate processes to reduce costs, increase consistency, expand coverage and/or improve the effectiveness of compliance.” She added that “The increased risk of key staff falling ill, reduced human resources through redundancies or furloughing and a search for savings in a period of the economic downturn has further incentivised financial services firms to automate their compliance processes.”

The FCA has further bolstered the adoption of new technology in financial services with a new Data Strategy which seeks to learn lessons around where issues arose in the past and how to mitigate them in the future, alongside better use of intelligence and predictive analytics spotting patterns and trends to also help them keep on top of fast-moving developments and strengthen their regulatory standpoint.

Challenges remain…

Just as the FCA are ensuring they keep their house in order – they have oftentimes highlighted that Financial Services organisations adopting RegTech solutions need to carry out proper due diligence, ensure that those solutions are secure and robust enough to achieve the aim of compliance, rather than creating further risks for both institutions and customers alike. Another more fundamental challenge precedes the current crisis – lengthy sales and onboarding cycles, integration with current IT systems and misalignment of trust and expertise between vendors and buyers. The trust issue is part and parcel of the complex case for firms’ use of RegTech –institutions need to be convinced that vendors are allowed to work with sensitive data, assets and systems. Clearly, they are hurdles that can be overcome and experience around this is growing, however, security, procurement and compliance risk can still act as a brake to innovation and deployment of RegTech solutions.

The times they are a’ changin’

But attitudes are changing – Thomson Reuters is one of many parties tracking the adoption of FinTech and RegTech solutions and has for the last four years surveyed compliance and risk practitioners globally. Their latest survey: FinTech, RegTech and the Role of Compliance in 2020, provides some revealing insights on how the technologies are positioned. One key revelation was firms globally are upping the ante on investing and reinvesting specialist skills to rise to the challenge of new tech – for Risk & Compliance functions 67% of respondents have widened their skillsets, with some 16% choosing to invest in specialist RegTech skills. However, some 26% of firms said they had yet to broaden the skillset but knew it was needed.  The survey also highlighted that over a third of firms (38%) expect their budget for RegTech to grow over the coming year, with a further quarter (25%) expecting it to remain the same. The report adds that ‘globally systemically important financial institutions’ have the most to gain from adopting RegTech – reaping benefits given their size, complexing and broad risk and compliance responsibilities.

Meanwhile, the top three solutions being used by firms to meet their compliance needs were:

  1. Know Your Customer (KYC) and onboarding tools
  2. Anti Money Laundering (AML) and sanctions compliance
  3. Market surveillance activities (eg trade and transaction monitoring)

The survey showed the overall perception around FinTech and digital disruption to have a strong positive trend since 2016 and RegTech views were also encouraging: a total of 77% (20% extremely positive, 57% positive) in 2020. In 2016 some 57% of respondents expressed neutrality to the tech and this had reduced by almost two thirds to 20% in 2019.

The path ahead

It is now clear that current developments resulting from the continued crisis and subsequent shifts in technology, behaviours and certainly in regulation are underlining how pivotal a moment this is for RegTech solutions. On one side regulators are keeping a close watch on developments to ensure standards are maintained, while on the other they are helping to encourage innovation and the evolution of better technologies to benefit business and their customers alike.

As the pace of technological change continues unabated alongside the disruption of traditional business models, the potential of RegTech is likely to broaden out beyond the Financial Services sector and become a standard in many other sectors in due course. With the power of RegTech becoming better understood in the business and regulatory landscapes it is surely now making its case loud and clear.

Other recent posts

CRO Consumer Duty survey findings: Customers at the heart of your business? Now is the time to prove it.

CRO Consumer Duty survey findings: Customers at the heart of your business? Now is the time to prove it.

We surveyed +80 Senior Compliance and Risk Officers from across the UK’s Financial Services sector to find out their top priorities and investment plans for Consumer Duty and how they’ll meet the tightening data-driven...

Aveni’s end of the year Reunion!

Aveni's end of the year Reunion!

Aveni works at the forefront of innovation in AI and Natural Language Processing, providing quality assurance and regulatory compliance solutions for financial services and utilities companies in the UK. However, that’s not all we...

Adoption of machine learning and data driven technologies at the heart of human centred advice

Adoption of machine learning and data driven technologies at the heart of human centred advice

This is an excerpt from our Human+ whitepaper. Download here for full details about how data driven technologies can power human centred advice.   The recent acceleration in digitisation of financial advice combined with advances...

executive understanding ai

AI: Why an executive understanding is so important’  - 5 key takeaways from Aveni Labs webinar

Data-driven technologies underpinned by rapidly evolving AI, are set to be placed at the heart of firms’ operating models. It emphasises the need for Financial Services Executives to have a clear understanding of AI,...

Record calls consumer duty

The FCA emphasises the importance of recording customer calls to meet Consumer Duty requirements

In the FCA’s recent Consumer Duty Retail Lending webinar, Jonathan Phelan, Head of Department, Consumer Finance at the FCA urged firms to record customer interactions as a critical step in being able to monitor...

financial advice data capturing

Driving Automation in the Financial Advice Industry with Data Capturing

The present day financial advice industry has seen little innovation since the turn of the last decade, but is now entering a period where it will be fundamentally disrupted.    The industry has relied...

Colin Clark Aveni Chairman

Investment heavyweight Colin Clark appointed as chair of AI fintech business Aveni has appointed investment heavyweight Colin Clark as Chairman of its newly formed Board. The strategic appointment comes in the wake of a recent successful funding injection of £2.75 million to grow market share...

financial services space

Aveni's busy week: FinTech Award Win, HomeGame 2 and JP Morgan Innovation Events!

Last week was a busy one for Aveni. From winning a Scottish Financial Technology award to being a part of two exciting and impactful events with JP Morgan and the langcat, we loved getting...

Impact of AI

Human+: Human-in-the-Loop AI

AI is already changing our lives; from expert systems which predict the weather and the stock market, to facial recognition and internet search results. Its application is growing more extensive. Some uses of AI...