RegTech—A revolution in regulatory compliance

Lukasa Insights

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A revolution in regulatory compliance

What is RegTech?

, or Regulation Technology, refers to emerging technologies that enable organizations to leverage digital tools to enhance their regulatory processes and ensure compliance. 

RegTech has become essential for organizations across a wide range of industries—especially those where there is robust oversight, such as finance, healthcare, food and drug, insurance, telecommunications, and many more, as well as any sector in which concerns such as consumer privacy, cybersecurity, and the safeguarding of data are critical to business and lawfulness.

The regtech industry is young but growing exponentially—its global market is projected to reach US $22.2 billion by 2027, up from $6.2 billion in 2020.

A brief history of RegTech
In 2018, the Thomson Reuters Cost of Compliance Report revealed that over the previous decade the financial services industry had seen a staggering 500% increase in regulatory rule changes, with a new update implemented every seven minutes. With this came a whopping 60% jump in compliance costs and risk management spending.

In 2020, when Covid-19 lockdowns forced even the more traditional industries to rapidly adopt modern digital tools to deliver their services, the risk of fraud and cybercrimes spiked. A 2021 report from Business Wire indicated that 74% of banks and insurers had experienced an increase in cyber attacks during the pandemic.

As risk rose, so did the difficulty of meeting regulations, as well as the urgency to keep up with changes and seal any gaps in compliance.

But to understand how we got here—and the real roots of regtech—we have to look back to financial crisis of 2008, which spurred President Obama’s call for a “sweeping overhaul of the United States financial regulatory system,” and culminated in the 2010 Dodd-Frank Financial Reform Act—a tipping point when historically underregulated industries were suddenly heavily regulated. 

Separately, but simultaneously, Artificial Intelligence (AI) and Machine Learning (ML) were disrupting nearly every sector with their vast capabilities. 

RegTech was born at this intersection. Although there was skepticism at first, regtech was an almost inevitable development—transformational new tools were arriving just as many companies needed a revolution in the way they managed regulation and compliance. 

Though some of the restrictions of Dodd-Frank were loosened in 2018, the swift pace and ever-evolving nature of regulation has made regtech indispensable.  

RegTech today
In today’s technology-driven economy, compliance is getting thornier all the time. 

And no matter how challenging compliance may be, the risks of noncompliance are steep: hefty penalties and fines, a loss of trust and reputation with your client base, potential legal action, heightened monitoring by regulatory agencies, as well as internal expense and painful downtime for your business as you assess what went wrong and work to correct the problem. 

RegTech uses automation to help firms meet the moment by keeping them abreast of ever-evolving regulations, streamlining nearly all aspects of the compliance process, and reducing risk associated with operations and/or being out of compliance. Further, improved efficiency reduces cost.

What can RegTech do and what are the big benefits?
In a nutshell, regtech tools save your organization time, effort, and money, while improving compliance and decreasing risk of numerous kinds.

RegTech harnesses the power of digital technologies such as big data and analytics, cloud computing, AI and ML, blockchain, robotic process automation, smart contracts, and more to help your organization stay abreast of regulatory changes in real time and adapt promptly.

While siloed, labor-intensive, manual processes result in inefficiency and human error, automation of repetitive tasks streamlines regulatory compliance processes and allows your staff to focus on more meaningful work.

Some of regtech’s main types and key functions include: 

  • Compliance monitoring – the ongoing process of making sure staff are following all internal policies and procedures
  • Regulatory monitoring - continually staying on top of changes in applicable, industry-specific regulatory laws, rules, and policies.
  • Risk assessment – application of innovative technologies that use automation and data to analyze, predict, and minimize risk.
  • Tracking and reporting
  • RegTech helps:
    • Protect data systems
    • Prevent security breaches 
    • Avoid fraudulent activities (money laundering, etc.)
    • Monitor transactions and identify irregularities 
    • Streamline reporting
    • Gain a comprehensive view of data and processes
    • Integrate diverse departments through data and enhance your company’s “community and continuity” (Gareth Evans, Thomson Reuters)
    • Handle identity management and control
    • Conduct monitoring of various types

Still, many companies are not yet using regtech to their full advantage.

At Lukasa we work alongside your existing team to identify pain points and solve your company’s most pressing problems with custom, integrated, data-driven, future-focused solutions. We’re insiders who understand the complex challenges of regulatory compliance—and the value of cutting-edge regtech tools. We’ll help you implement the most effective regtech strategy for your unique enterprise.

About Lukasa -
Lukasa empowers small-to-medium-sized businesses by designing and implementing custom business and technology solutions that drive efficiency, productivity, and innovation, enabling them to stay ahead in today’s rapidly-changing competitive landscape.