Banking is one of the most regulated industries, and the regulations are only increasing as new generational and fintech practices emerge. These new dynamics have resulted in the emergence of hitherto unknown legal frameworks and regulatory compliance standards. This is the area in which banks have embraced Regtech implementation. Regtech is a term that refers to a combination of rules and technology that combines the power of technology with increasing regulatory requirements to expedite financial institutions’ innovation efforts.

E Guide - How to Establish a Culture of Risk Awareness and Compliance in the Banking Sector

Regtech solutions are technical solutions that are specifically developed to aid banks with regulatory compliance. Among them are the use of artificial intelligence to assess risks, data warehousing technologies to avoid cyber assaults or security breaches, and automatic data streams to provide control organizations with the instant reporting they require.

What Has Propelled Regtech’s Growth?

Several different factors are contributing to the proliferation of Regtech in banks and financial institutions:

Collaboration Between Fintech and Banks Is Becoming More Prevalent

The financial industry’s digital disruption has resulted in a boom in new alliances between fintech startups and banking institutions, with the latter subject to the highest number of regulatory requirements from control authorities. Furthermore, they are accountable for the technologies they install.

Transparency between the two entities is critical in this case. Throughout the event, the primary conclusion was that if banks decide to pursue strategies with fintech businesses, they should establish an effective induction process that ensures all parties understand the applicable laws and regulations.

Increased Enforcement of Existing Restrictions Governing New Products

As a result of the rapid proliferation of financial solutions in recent years, regulators in several countries have been forced to choose between evolution and tradition.

Regtech helps automate compliance and risk monitoring. The use of A.I. and trend analytics highlights any unusual activity, allowing banks and financial institutions to eliminate cybersecurity vulnerabilities proactively. Share on X

The answer has varied; some countries are demanding that fintech be subjected to the same legal scrutiny as established financial institutions, while others argue that fintech rules should be more flexible to foster innovation. There have been similar moves in the United States – Congressman Patrick McHenry introduced the Financial Services Innovation Act, which would allow fintech companies to benefit from a more flexible regulatory beta testing period than traditional financial institutions.

Increased Collection of Information and Data By Financial Institutions

The fintech revolution has resulted in increased user access to financial services. This has resulted in financial institutions amassing a large amount of data about their users, which must be processed and analyzed to ensure compliance with regulatory requirements. Data analytics is another area where Regtech emerges as a risk mitigation strategy. A.I. powered solutions are now being used to identify applications and profiles that contain risk or unusual descriptions, thereby facilitating financial institutions’ administration and compliance.

Increased Operational Difficulties Faced by Compliance Departments

This point is a mixture of the previous two. Given the increased volume of data received by banks and the emergence of new rules, compliance departments at financial institutions have the ongoing task of updating the technical solutions they utilize for regulatory compliance. This is an area where Regtech vendors can be great partners for banks and financial institutions—working with Regtech vendors that operate in the financial sphere results in solutions that are designed to be compliant with all applicable regulations. The workflows in these solutions are also created to fulfill all relevant compliance requirements successfully. This increases efficiency and reduces risks for banks and financial institutions.

Increased Cybersecurity Risks

An increase in digital delivery channels also means there is an increase in cybersecurity risks for bankers. Regtech helps automate compliance and risk monitoring. The use of A.I. and trend analytics highlights any unusual activity, allowing banks and financial institutions to eliminate cybersecurity vulnerabilities proactively. Cybersecurity risks were a reason for banks to stay away from regulatory technology a decade ago because they thought increasing technology implementation would result in increased cybersecurity risks. The scenario has completely changed – digital service delivery channels are now necessary for customers, which means that Regtech is now the perfect tool for banks and financial institutions that want to reduce and manage cybersecurity risks.

Better Regtech Solutions

The improvement in Regtech solutions is an oft-overlooked reason for the increase in the popularity of Regtech adoption. Regtech was still an experimental field a decade or two ago. Regtech solutions had limited capabilities but were very expensive to implement back then. Advancements in cloud technology and A.I. have made Regtech solutions much more capable while drastically reducing the costs attached. This means that implementing Regtech solutions now has a vastly superior ROI effect for banks compared to 10 years ago.

Regulatory Change Management Software

Interested in seeing how your bank can utilize Regtech to improve operational efficiency and enhance its risk and compliance framework? Get in touch with our experts for a demonstration of Predict360; the American Bankers Association endorsed solution for risk and compliance management.