What Is Regtech?
20 September 2017
For those of you who like to keep up with business news, you’ll no doubt have heard the terms Fintech and Proptech on a fairly regular basis by now. We’ve written about both topics several times in our blog. However, there is another portmanteau that is about to become incredibly prominent in the Financial Services industry: Regtech.
But what exactly does that mean? Business site Investopedia concisely defines the term: “A blend word of 'regulatory technology' that was created to address regulatory challenges in the financial services sector through innovative technology. Regtech consists of a group of companies that use technology to help businesses comply with regulations efficiently and inexpensively.”
Essentially, the very nature of Fintech means that regulations surrounding the industry are constantly changing. Banks, financial institutions and start-ups are under immense pressure to ensure that they are following the very letter of the latest rules. Regtech utilises technology to assist these organisations in terms of both understanding legislation and managing risk.
It is a flexible, reactive industry that remains ahead of the curve when it comes to implementing legislation. The term itself will actually mean different things to different sectors of finance. There are many different types of Regtech firms: From those dealing with credit card fraud to those tracking potentially compromised investments.
The financial crisis of 2008 resulted in heightened regulations within the financial sector. Alongside this, technology and new banking products have disrupted this rather traditional industry. These two factors often mean that Fintech, as it is still in its infancy, can often be met with mistrust and uncertainty. The introduction of Regtech is perhaps designed to counter this. Furthermore, the implementation of any post-Brexit legislation could also potentially impact financial services legislation as the UK decides which laws it will incorporate into domestic ruling.
However, the Fintech industry relies heavily on consumer data and information in order to produce and upgrade products. This has led to some concern within regulatory bodies, who are concerned about potential breaches of data privacy laws, which will impact heavily as of next year under the new GDPR regulations.
Consumer reliance on digital products such as apps or online banking has led to legitimate concerns surrounding cyberattacks, data breaches and other such fraudulent activity. To counter this, Regtech tools track and monitor online transactions in real time in order to identify potential irregularities before they become a bigger problem. Naturally, if a threat can be identified sooner rather than later, this allows a bank or financial services company to act swiftly, minimising the risks and costs that tend to be associated with security breaches of any kind.
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Written By Shona Preston