RegTech: Here to Stay?

RegTech has grown from a niche, fledgling subset of the FinTech ecosystem to one of its most promising and exciting areas. RegTech, or ‘Regulatory Technology’, is a term used to describe the current generation of companies focusing on innovation in compliance, similar to how ‘FinTech’ companies such as MarketInvoice, Funding Circle, and TransferWise are changing traditional areas of finance.

What previously consisted of a small group of businesses disrupting the enormous financial regulation industry has become an industry in, and of, itself, with RegTech companies routinely drawing headlines, challenging incumbents and more often than not closing venture capital rounds worth tens of millions of dollars. Is RegTech a sustainable ecosystem, or a bubble waiting to burst? What might the future have in store?

No Longer the New Kid on the Block

RegTech, in many ways, has grown up. Global corporations such as Deloitte recognise it as ‘The Future of Fintech’, suggesting that innovative RegTech companies can increase efficiency and save money for clients in ways that couldn’t have been imagined five years ago. In November 2016, CBinsights estimated that $2.3 billion had been raised in funding rounds for RegTech companies, suggesting that 2016 may have been a record year for RegTech investment even in the face of a global slowdown in venture capital.

RegTech certainly garnered more attention in 2016 than ever before. Previously, RegTech was solely the domain of the forward thinking financial firm that recognised the value in consolidated and simplified compliance processes. Today, in 2017, regulatory technology is much more mainstream. EY published a brief report on how RegTech could provide a “competitive advantage” to firms looking to take advantage of it, covering the FCA’s recent efforts to “foster innovation and technology” as part of its Project Innovate: RegTech scheme. Singapore also launched its own regulatory sandbox, with Australia outlining plans to do the same.

Little by little, RegTech has simultaneously grown too big to ignore and the few barriers to its widespread adoption have begun to melt away.

Trend, or Too Important to Ignore? 

As with every industry that approaches maturity, discussion and debate surround RegTech. Is it going to be AI (Artificial Intelligence) that drives RegTech into the hearts of financial companies the world, or the blockchain? It might be a long way away, but will we ever reach ‘peak regtech’, in the way some might argue we have reached ‘peak app’?

For many RegTech innovators, it doesn’t matter. Instances where RegTech has been successful are not because of the ‘innovative’ application of a trendy new technology (in the same way 3D TVs came and went in the space of a single summer). It has been successful because stakeholders have identified that new ways of thinking about old problems can come with radical gains in efficiency. That kind of thinking is sustainable, and it suggests that RegTech is a much more valuable business model than people might realise.

RegTech isn’t a fad, because nobody improves their compliance capability for ‘fun’. People might purchase a voice-activated speaker because it’s fun and exciting new technology, but if it doesn’t make a tangible impact on people’s lives then it certainly won’t be here to stay. RegTech solutions exist to solve real, difficult problems that for decades have been too daunting or too complicated for businesses to solve - see shareholding disclosure, for example.

It’s wrong to suggest that RegTech is seeing lots of attention and adoption because it’s a ‘hot topic’ at the moment. It might be more fitting to suggest that RegTech is now, finally, beginning to get up to temperature because financial companies, large and small, are finally understanding just how big an impact it can make to their business.

Lots of people say that 2017 is going to be the ‘Year of RegTech’. I say they’re right, but I also think RegTech is going to continue to grow for a long, long time.