The RegTech Revolution and Why it Matters

It may be far from the theatrical thrill of the great train robbery or the sheer chutzpah of the Hatton Garden raid, but today’s financial crime is a huge global problem, one that costs the UK £52 billion a year. To put that in context, that’s nearly half the annual budget of the NHS.

The seeds of RegTech were sewn during the financial crisis but it’s only now that it’s truly coming to the fore. Regulation Technology, or RegTech to use its shortened name, utilises the latest technologies to fight financial crime, and it’s playing an increasingly important role.

The roots of RegTech go back to the 1990s when a global regulatory framework was first put in place to help combat financial crime. But it wasn’t until the financial crash of 2008 that things really took off.

To combat the ever-sophisticated art of money laundering and terrorism financing, authorities have had to create an increasingly complex set of regulations, regulations that are constantly evolving. It’s kind of like a game of cat and mouse: those engaged in financial crime become more sophisticated; regulations evolve accordingly to combat this crime. Added to this is that regulations need to keep up with the rapid pace of technological change.

The by-product of this is a regulatory burden that is, for many, too complex to handle. And that’s where technology has come to the rescue.

The solutions that some of the best minds have come up with are pretty ingenious; out of complexity has come simplicity and the results are surprisingly artistic. Moreover, RegTech has fostered collaboration across the financial world.

That RegTech has been able to take off so rapidly is also down to more common data standards and the adoption of the cloud. With blockchain and AI now hitting the mainstream, RegTech will rapidly evolve.

RegTech is also a uniquely British success story. It challenges the notion that the US is the always the holy grail of digital world because, with RegTech, the UK leads the way. Kudos needs to be given to the Financial Conduct Authority (FCA) for their innovative approach to regulatory sandboxes as well as financial regulation in general is currently the envy of the world.

It’s not just the FCA that has put the UK at the forefront of this burgeoning new industry. We have some of the best innovative minds clustered not just in London, but also in many of our leading university towns. Plus generous investment and impressive enterprise schemes ensure the very best startups get off the ground.

Of course, there are still loopholes that criminals exploit, and regulators and RegTech firms are doing what they can. In RegTech’s favour, it fosters collaboration, the sharing of data and information making the compliance process more robust. Currently one area of greatest potential is intelligent learning which is already being utilised to spot suspicious behaviour in a way that an individual cannot.

The challenges of fighting financial crime in today’s geopolitical landscape are immense. The evolution of RegTech and its associated technologies is paramount if we are to have any chance of keeping one step ahead.

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