Covid 19 and Future of Regtech

The use of specialized tech to help financial institutions meet heightened regulatory requirements — a.k.a. regtech — is poised to continue taking off this year. Given the uncertainty surrounding COVID-19, the rate of adaptation is, like much else, unclear. Institutions may have to scramble while focusing on the immediate fallout of the pandemic, but eventually, the tech that’s been gaining a foothold over the past couple of years will continue moving forward.

With fines posing a significant risk for institutions, harnessing artificial intelligence (AI) is becoming paramount. Automating data collection and interpreting that data as quickly as possible — and thereby heightening the odds of raising the alarm when patterns of suspicious transactions appear — are dual processes now flourishing in the finance sector.

So what will be the trends for the rest of 2020? Underlying them will be the continued expansion of robust investment in regtech.

A white paper by U.K.-based Juniper Research predicted that global spending in the sector will rise from an estimated $18 billion in 2018 to an estimated $115.9 billion by 2023. North America ($41.8 billion) and Western Europe ($37.4 billion) are expected to see the bulk of that investment. According to the study, this projected increase will result in 40% of global compliance spending being in the regtech sector in just three years.

Some of the innovations compelling this expansion will include analytics driven by big data, which can produce actionable results far more quickly, including everything from possible insider-trading activity to terrorist-related transactions. A domino effect of this will be the ability to introduce analysis at more steps within an overarching process, thereby curtailing adverse risk that can mushroom before being discovered.

This scalability will provide for the tracing of far more individual records and producing compliance documentation more often, especially when implemented with smart data analytics and machine learning, which allow for more immediate action without having to wait for analytics to be processed elsewhere on the platform. It will also accelerate data processing thanks to automation. This will result in regulatory report generation systems being more robust and anti-money-laundering systems that are triggered more quickly and accurately. It will also aid in the adoption of cloud computing solutions that create better and safer coordination across physical locations.

Robotic process automation and natural language processing both involve AI being developed — and “learning” — to better communicate with and mimic human communication (including recognizing behavior that isn’t quite human enough). These can be used in know-your-customer routines, especially in concert with facial recognition technologies and biometrics that better establish customer identity. They will also play key roles as the internet of things continues to expand into the finance sector, bringing a flood of new devices and, therefore, entry points into vulnerable systems online. Knowing your customer — and when that customer is behaving in patterns that seem perhaps too programmed — is an ongoing challenge when there are so many access points into the financial system.

On both sides of the Atlantic, the regulatory environment is demanding faster access to ever more data. This creates significant incentives to adopt AI tech-based solutions. The new regulatory ecosystem demands that the logic of an institution’s investment decisions is supported by a broad array of data points and that the challenge of protecting customers’ private information is met. New solutions will have to evolve.

With it being obvious that paper-based systems simply cannot keep up with the speed of the current reality, regtech will have to become ever more integrated into institutional norms — which explains the projected skyrocketing investment in this area in the coming years.

Originally published on forbes