Banking RegTech: What Is It, and Why Is It Important?

The compliance lifeline everyone is looking for lies within banking RegTech. Now we know that the RegTech market is booming: with a market size of 6.3 billion USD in 2020, it will reach 16 billion USD in 2025 (Markets And Markets). What a huge leap!

The increasing number of regulatory changes and the rising compliance costs are making more institutions opt for technological advancements, so the market growth is understandable. But when it comes to tech innovations, many managers simply don’t know where to start, and we want to make it clear for you with this blog post.

Introduction: What Is RegTech in Banking?

RegTech (or regulatory technology) is a term to describe regulatory compliance management with the help of technological innovations. RegTech includes cloud computing, predictive analytics, machine learning, natural language processing, etc.

RegTech first appeared in 2008, and now there are 439 RegTech companies in the world with different areas of focus (according to a Deloitte report). In addition to that, the vast majority of G-SIFIs (global systemically important financial institutions) have an extremely positive or mostly positive view of the RegTech innovation (Thomson Reuters).

Financial institutions (FIs) invest in technology to stay competitive, readily meet upcoming market challenges, and reduce possible risks.

5 Ways You Can Use RegTech in Your Business Processes

The world of RegTech is complex and involves several types of activities. Deloitte distinguished five main areas in which existing RegTech companies operate.

1. Compliance

The capabilities of AI and machine learning in regulatory compliance include:

  • Tracking new and updated regulations in the industry,
  • Analyzing new documentation,
  • Adopting regulations according to specific business demands,
  • Visualizing data, and
  • Assisting in training employees on their obligations.

2. Identity Management & Control

Banks using RegTech can remove the manual KYC (know your customer) procedure altogether. They not only get their time back but also acquire in-depth details. With all these advantages, FIs using RegTech have the most powerful tool for fraud detection.

3. Regulatory Reporting

As the number of regulations around your business continues to grow, so does the data in your organization. From now on, you can entrust AI to do the dirty work. It can collect necessary datasets, classify them, and form reports according to the established regulatory standards.

4. Risk Management

RegTech solutions for banks can process big chunks of data in no time, and, more importantly, they are always attentive to the tiniest details. These features make RegTech the best tool to identify and assess compliance risks.

5. Transaction Monitoring

Just think about how many transactions you can check manually — it’s hardly a big portion of the total number. The best way to get rid of unnecessary fuss in this regard is to opt for RegTech. Technologies can monitor every transaction in real time and send alerts in case of suspicious activity.

How It Works: The Process of Banking RegTech

Now, let’s unravel how the RegTech process looks. Regardless of your goals, the flow consists of five fundamental parts.

1. Customer authorization

Before going any further, you should introduce your customers to the system, verify their assets, and ensure quality onboarding. RegTech already starts working in this stage, checking user ID with different sources.

2. Monitoring

The routine part comes next. FIs have to monitor a lot of continual activities that happen every day and make sure all of them comply:

  • Thresholds
  • Suspicious actions
  • Records
  • Personnel supervision
  • New and updated regulations
  • Market changes.

3. Detection

RegTech is an effective detection tool for all kinds of fraud activities and a means of protection from terrorist finance. Technologies identify risk signs or fraud patterns to warn the bank’s managers.

4. Reporting

Machine learning algorithms gather enough information to prove that suspicious actions have taken place. Prompt reporting is the foreground guarantee of your market reputation for both customers and authorities.

5. Means of control

Control tools ensure compliance, risk mitigation, and smooth processes across the four parts of the general workflow. It is a firm foundation to keep the RegTech system stable and scalable.

How to Figure Out If You Need to Build a Custom Banking RegTech Solution

Financial regulatory technology is easily accessible and can be integrated into your workflow as soon as you need it. But what if market solutions are not enough? Let’s find out if that’s the case in your situation.

You have to carefully weigh the pros, cons, and your business situation before making a final decision. Try to think in isolation from what your competitors do and focus strictly on your current needs.

Financial RegTech does not end here. In our blog post, we’ve prepared a list of steps for a successful RegTech integration based on our communication with clients. Enjoy your reading!




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We solve real-life challenges with innovative, tech-savvy solutions.

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