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RegTech: Transforming Compliance Procedures in the Fintech Era

RegTech: Transforming Compliance Procedures in the Fintech Era


With the rapid growth of Fintech in the past two decades, financial service providers have faced increasing scrutiny in regards to their compliance frameworks. In response, Fintech firms are widely embracing innovative technology-driven solutions to deal with identification and assessment of clients. This technology is commonly referred to as RegTech and addresses challenges in reporting, risk management, and fraud detection.

According to a recent report by Juniper Research, RegTech is positioned for substantial growth and is expected to account for over 50% of companies' compliance infrastructure spending by 2026. This shows the increasing significance of emerging technologies in the financial services industry, not only for building fast and efficient payment systems but also for supporting streamlined compliance practices.

So, what exactly is RegTech, and why are modern companies leveraging it to streamline their regulatory processes? In simple terms, RegTech involves using 21st-century technologies such as AI and Machine Learning to digitize internal control processes. This includes tasks like identity management and transaction tracking, enabling seamless execution of due diligence on new users and the detection of unusual transaction patterns.


The Role of RegTech in Modern-day Compliance 

In the Fintech sector, RegTech's value proposition can be categorized into five main areas, which we will delve into in the following section: regulatory reporting, transaction monitoring, cybersecurity and data protection, identity management, and risk control.

Regulatory Reporting 

In the compliance landscape, financial service entities are obligated to provide regular reports to governing authorities regarding their operational state. However, this process has historically been anything but simple. Prior to the emergence of RegTech, data analysis, collection, and submission procedures were often complex and involved sifting through vast datasets.

On the brighter side, the introduction of RegTech platforms provided by industry leaders like AxiomSL and Encompass has revolutionized the way financial institutions handle reporting requirements, significantly reducing the complexity of compliance. These advanced solutions automate data management and reporting processes, streamlining the collection, analysis, and submission of regulatory reports.

A 2020 report by MarketsandMarkets estimated that the global Regtech market is expected to reach $16.0 billion by 2025, driven by the increasing demand for efficient regulatory reporting solutions.

Transaction Monitoring 

Another crucial aspect of compliance is transaction monitoring. With an increasing influx of funds related to money laundering and terrorist financing into the financial system, Fintech firms are keen to avoid being caught off guard and inadvertently facilitating these illicit activities. 

Thankfully, RegTech has made the process of monitoring transaction activity and identifying suspicious patterns a breeze. A recent survey conducted by Thomson Reuters Regulatory Intelligence (TRRI) revealed that 14% of global financial services companies leverage RegTech specifically for transaction monitoring purposes

At the core, RegTech tools in this niche employ advanced technologies like AI and Machine Learning to monitor financial transactions in real-time. Companies such as NICE Actimize and FICO Falcon Fraud Manager are some of the leading examples that offer RegTech solutions effectively designed to identify suspicious activities and mitigate fraud risks.

Cybersecurity and Data Protection 

Fintech platforms have undeniably transformed the financial services landscape, but they also bring along a significant concern: security. In today's digital world, these digital ecosystems have become magnets for various malicious players, ranging from hackers and scammers to individuals seeking to steal valuable data.

Fortunately, RegTech solutions in cybersecurity and data protection empower financial institutions to proactively monitor their systems, identify vulnerabilities, and swiftly respond to security incidents. By implementing robust cybersecurity measures through RegTech tools, organizations can effectively minimize the risk of data breaches, safeguard customer information, and preserve the trust and confidence of their stakeholders.

One example of a RegTech solution in this niche is a cybersecurity platform offered by a company like Fortinet. Their platform utilizes advanced technologies such as artificial intelligence and machine learning to detect and prevent cyber threats. It includes features like network security, endpoint protection, and data encryption to safeguard sensitive financial information.

Identity Management 

Know Your Customer (KYC) and Customer Identification Procedures (CIP) are crucial business aspects that undergo frequent audits to ensure compliance. But at what cost? According to Statista, the identity verification market has experienced significant growth over the past decade, with projections indicating that it could surpass $18 billion by 2027. In other words, organizations are investing heavily in this niche.

But with RegTech tools now in the picture, Fintechs can reduce the manual effort and time required for identity verification while enhancing the accuracy and reliability of the process. These tools can quickly verify customer identities, authenticate documents, and perform risk assessments in real-time, enabling Fintechs to onboard legitimate customers faster and more efficiently.

For instance, companies like Onfido and Jumio are leading the way in providing RegTech solutions that leverage AI and biometrics for secure and seamless identity verification. These companies have developed advanced technology platforms that combine facial recognition, document verification, and machine learning algorithms to verify user identities with a high level of accuracy.

Risk Control 

Last but not least, RegTech platforms have emerged as vital tools for effective risk management in the financial industry. Companies such as Riskified and Quantifind provide RegTech solutions that leverage data analytics and AI algorithms to assess risk profiles and detect emerging risks. 

The adoption of RegTech solutions for risk management provides several benefits to financial institutions. Firstly, these platforms offer real-time monitoring and analysis of vast amounts of data, enabling early detection of emerging risks. This allows organizations to take proactive measures to mitigate those risks before they escalate into significant issues.

Secondly, the use of advanced analytics and AI algorithms enhances the accuracy and effectiveness of risk assessments. RegTech tools can identify patterns, anomalies, and trends that may not be easily detectable through traditional methods. This enables financial institutions to make data-driven decisions and allocate resources more efficiently.

Peanuds - A Regulatory Conscious Fintech  

In a world where trust and accountability are paramount, Peanuds remain conscious and is committed to upholding rigorous regulatory standards through meticulous oversight of operations. With a deep understanding that compliance is not just a requirement but a fundamental pillar of success in the financial services industry, Peanuds creates a secure and trustworthy environment for clients looking to leverage Fintech services.