MARCH 2022 NEWSLETTER
Up and Up of RegTech
Ben Mason, CEO, My Compliance Centre
30 March 2022
One of the areas close to our hearts, and of importance to our primary target group – senior compliance officers – is the onward development of the RegTech market. It has come a long way relatively quickly and it is very interesting to track its increasing sophistication. Forecasts indicate an ongoing 20-30% compound market growth over the next few years.
The desire to automate management of regulatory responsibilities and compliance processes is very strong. Technologists are teaming up with compliance people and VCs are funding very early-stage start-ups as well as later funding rounds. RegTech Associates products register now has a staggering 1421 products on it. My maths suggests that there is some consolidation to be done, shall we say, but it is wonderful that so much innovation is happening in support of the world of compliance and regulation.
One of the interesting aspects of the RegTech market is how it is sub classified. I always found the term “RegTech” to be very broad and imprecise. What does a CASS reconciliation system have to do with a fraud prevention product? Or payments transaction monitoring to do with management of regulatory change?
Categorisation of RegTech is therefore very helpful – but it is not easy.
By way of comparison, as someone who follows the financial services industry very broadly, I’ve always felt that defining the industry sectors within financial services was simple and universally recognised. Quite simply, they are banking, capital markets, retail investment, asset management, non-bank lending, payments and insurance. There is plenty of space for a pedant to argue about where one sector meets another, but broadly, that is what it is.
With RegTech it is much less precise. One of the best pieces of strategic work I have seen in a while is by the Judge Business School within its Global RegTech Industry Benchmark Report (section 7, P45).
Instead of attempting to sub-categorise RegTech as an industry, they have identified the other parties who have already had a go. There are ten of them and the wide range of definitions highlights the challenge: does anybody quite know what RegTech is and where it stops and starts? (It is a very interesting comparison – and personally, I don’t really think any of them quite capture it!)
There is a practical aspect to this. For Heads of Compliance wanting to move their compliance functions forward through suitable automation, it is difficult to track which RegTech sectors are genuinely available to them and what level of benefit can be expected. For us as a generalist compliance management platform, we need to determine which other sectors offer the best returns for API type integration.
However, the fact that as an industry we are considering and evolving sector categorisation strongly indicates significant progress and maturity. And the fact that most credible financial services companies have some sort of RegTech strategy indicates that there is value to be derived.
How does the industry move forward? I think the significant challenge for RegTech vendors is proving value to potential customers. A Head of Compliance needs to see real value if they are to put their credibility on the line by proposing investment to their board.
It also feels that too much service provision is aimed at the top end of the market: banks, insurers and larger capital markets firms. Firms in the mid-market have significant regulatory costs and an ongoing management compliance challenge, and I am positive there is space for more easily implemented solutions within the mid-market. (Recognising that many small firms have their RegTech provision supplied by their compliance service provider.)
It is an exciting and dynamic time to be a RegTech company and as an industry the roller coaster ride over the next few years will be something to behold as the industry continues to grow and mature.