• Avril Brenda Chan

RegTech: The Next Big Thing

Ever since the financial crisis, regulations for financial services have expanded at an astonishing rate along with the cost of compliance. In the last 10 years, over $320 billion was paid in fines and penalties and It is estimated that within the next five years, the cost of compliance for companies will rise to $280 billion.

In June 2020, Singapore authorities had charged a 23-year-old woman for breaking the ban on unlicensed bitcoin sales. She had allegedly bought S$3,350 in bitcoin from the proceeds of an online scam on behalf of a Loan Shark. As she was found with no license, she could be fined a maximum of $88,000 and receive 3 years in prison for not abiding by the Payments Services Act (PSA), by undertaking unlicensed Digital Payment Token (DPT) services “on the instruction of an unknown person in return for a commission.” Countries all around the world face similar problems with compliance. In America, the Bank of America had paid for one of the five highest compliance fines of the decade.

According to efinancialcareers, compliance roles are now seen to be the third most stressful job. The financial crisis, Brexit, cybercrime and the current Covid-19 pandemic has resulted in this high-stress profession. As regulatory changes occur and tighten, compliance officers are now under increased pressure to perform well to tackle these challenges. This has resulted in businesses looking for ways to ease the pressure on their compliance teams as well as ways to protect their business.

As businesses start to see the benefits of digitalisation, we start to see the industry move towards technology such as RegTech. RegTech is the next big thing and will soon become a necessity for most if not all businesses. Progress in the RegTech sector has been mainly led by start-ups and between 2013 and 2017, $5 billion was invested in RegTech startups. These investments show how RegTech is almost sure to continue advancing in the coming years.

Some may ask, how exactly does RegTech benefit businesses? RegTech helps to not only increase efficiency but also to increase accuracy as well as lower costs through the automation of compliance work. RegTech increases efficiency by making use of data analytics that enable regulatory information to be analyzed which helps to ensure that businesses are constantly identifying the risks they face and solving them most efficiently. It then raises accuracy and reduces cost due to the reduced need for manual labour. RegTech businesses offer specific services such as Know Your Customer (KYC) whereby Anti-money Laundering (AML) and Combating the Financing of Terrorism (CFT) screening is conducted. Additionally, RegTech also offers Know Your Transactions (KYT) which helps businesses to manage their risk exposure to illegal activities by utilising advanced risk algorithms for transaction limits, laundering trends, and by layering heuristics and robust cryptocurrency addresses database. Lastly, RegTech is set to improve customer experience. By digitising the onboarding process, it appeals to customers as it offers a fast yet seamless online experience.

With all that said, Regulatory Technology is definitely a sector to keep an eye out for as the tools that RegTech offers can immensely help businesses to comply with regulations whilst improving efficiency and lowering costs. With the emergence of stricter regulations, more and more businesses are obligated to be compliant. Businesses should thus try to make the shift to RegTech where possible so that they can be more efficient, accurate and cost-effective.

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