KEY POINTS

  • Financial firms have faced an ever-increasing regulatory burden since the 2008 crisis. Banks, insurers, asset managers, and brokerages are contending with soaring compliance costs as the volume and complexity of new rules tax their systems and processes. 
    • National and regional governments have introduced significant new regulation. In particular, the US, EU, and Australia have enacted wide-reaching laws designed to prevent another global financial crash. The legislation is composed of new regulations as well as technical standards and implementation requirements for existing rules. 
    • Financial regulation across borders rarely aligns. Because many financial firms do business in multiple jurisdictions, they must contend with different approaches to regulation of key segments across borders. This adds to the complexity, and, therefore, cost, of compliance.
  • This has created an opportunity for a new breed of company offering solutions to regulatory challenges. These firms, known as regtechs, leverage cloud computing, advanced data analytics, and new ways of working to help financial firms address compliance, reporting, and data challenges presented by the increasingly complex regulatory landscape. 
  • Regtechs are well placed to help financial firms with many areas associated with compliance. This goes beyond automating legacy processes and can include interpreting legislation, designing new compliance processes, and managing and processing data. To do this, regtechs typically maintain a narrow focus to aid compliance in specific areas or segments. This allows them to leverage strategic advantages — including new technology and ways of working — in ways financial firms and existing compliance systems can't.
  • Large legacy financial firms are the biggest opportunity for regtechs. This is because they have the largest regulatory burdens — some are spending as much as $100 million on Know Your Customer (KYC) and due-diligence requirements alone. They also typically offer a broad menu of services, meaning they are affected by a wider range of regulation. This means there are many areas in which their existing compliance systems and processes may face challenges. 
  • Regtechs are also ideally placed to help fintech startups. Fintech startups often face significant regulatory challenges without the resources to address them. Regtech solutions are typically well suited to working with new business models, solving specific problems efficiently, and scaling in line with company requirements. This can make them ideal partners for startups seeking to ensure compliance using as few resources as possible.  
  • Despite their ability to leverage [...]