The Future of RegTech: Listening to Those at the Coalface

Ben Mason

22 September 2021

It’s a sad fact of life that the voices of those who matter most are often the ones missing from a conversation. Which is why it was great to see the FCA publish research in June looking at RegTech from the buyers’ perspective. 

Perhaps you’ve already read its Insight article: ‘The future of RegTech – what do firms really want?’ If not, you can read it here

Essentially, the main findings were 

  • Customers are very satisfied with what RegTech can provide.

  • However, there’s demand for standards certification, better technology integration and better communications from the industry.

  • And customers believe regulators have a vital role to play in the future of RegTech.

While I think the research is an important contribution to the RegTech debate, I’d like to delve a little deeper to give you an insider’s perspective – and bring you a slightly different viewpoint. 

Not only am I CEO of a RegTech firm but I was also CEO and remain a Non-Executive Director of one of the UK’s leading compliance consultancies. That makes me well placed to comment on the research and the future of RegTech generally. 

So what I’d like to do is share with you my opinion on four key points.

The RegTech story

The FCA says a key challenge for RegTech firms is how to make the leap from ‘proof of concept’ to demonstrating ‘proof of value’. They need to better articulate both the problem their software is aimed at and the solution it provides. 

In other words, they need to tell the RegTech story.

I agree. And at My Compliance Centre we’re approaching this in three ways:

  1. Case studies showing how My Compliance Centre creates real value;

  2. An ROI model helping companies produce a cost-benefit analysis;

  3. And a ‘test drive’ phase, allowing firms to experience the difference our platform makes.

But it’s not just RegTech firms who need to be better storytellers. The FCA itself has an important role to play. 

To be fair, the FCA acknowledges this. It recognises that if the RegTech ecosystem is going to grow and develop the FCA needs to continue its advocacy role. 

I applaud it for that. But I’d like to see the FCA and other independent bodies do more. 

They need to help firms understand not only the advantages of RegTech in general but the wide-ranging benefits of the myriad of specific RegTech use cases for different types of situations and companies. 

A good advocate understands the benefits of what they’re advocating. A great advocate has a precise grasp of the specifics. 

And this brings us nicely onto the next point.

A RegTech taxonomy

What exactly is RegTech? 

For a start, while RegTech is considered a ‘branch’ of FinTech, it’s a completely different animal to FinTech. Grouping RegTech with FinTech is like mixing apples with pears, association football with rugby football. 

But there’s another problem. The use of the word ‘RegTech’ is now so imprecise that it’s difficult to get much insight from research that looks at the RegTech market as a whole. 

When a respondent answers a question, are they really considering their company’s broad use of RegTech – from transaction monitoring to regulatory reporting, AML to compliance management, regulatory change management to CASS reconciliations? 

The FCA alludes to this problem. It calls for a universal RegTech taxonomy to help stakeholders speak the same language. 

But, to an extent, this already exists. The industry sub-classifications provided by RegTech Associates are one example. And the University of Cambridge’s Judge Business School identifies ten other sources who all provide different sub-classifications of RegTech. 

Those could be used to inform detailed research into the benefits of specific RegTech use cases – e.g. compliance management, regulatory change, AML, regulatory reporting, transaction monitoring, and so on. 

But gaining a more detailed insight into the specifics of RegTech is only half the picture.

Compliance pain points 

If the FCA is to identify the precise benefits that RegTech offers, it first needs to understand where the real costs of compliance are. 

What are the pain points firms experience as they manage specific aspects of compliance? Which tasks take them the most time?

Knowing this will allow the FCA to examine the real cost benefits (including ROI) that RegTech offers.

RegTech for all

Finally, while I think the FCA’s research was too general in its analysis of RegTech, in another important aspect it wasn’t broad enough.

The research was based on interviews conducted with senior decision-makers at firms with more than 200 employees. At most, that’s only 20% of the market.

What about the other 80%?

Many regulated firms with less than 20 members of staff have a full-time compliance officer and use RegTech for one or more applications already (e.g. AML). It’s likely they would use more RegTech if they clearly understood the benefits.

It’s up to RegTech firms and the FCA to give them that clarity. 

And this starts with understanding how both small and medium-sized firms are currently managing their compliance and then mapping that against the benefits that different RegTech use cases offer.

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