Regulatory technology, or regtech, has emerged as a critical component in the fight against money laundering and fraud associated with the financial services industry. It helps automate compliance processes, while creating better customer experiences.
Regtech or regulatory technology refers to a range of SaaS (software as a service) solutions designed to automate regulatory compliance processes for businesses across different sectors. It is often associated with the financial services industry though, where companies have to comply with know your customer (KYC) and anti-money laundering (AML) regulation. Failure to comply with these laws can lead to significant financial penalties and reputational damage for firms, so the role of regtech is significant.
How regtech evolved
In the aftermath of the 2008 financial crisis, there were many new regulations that came into force to close the loopholes that had created the crisis. This increase in regulation coincided with advances in technology that disrupted the nascent fintech sector, and regtech was born to meet the requirements of both regulators and the industry. Regtech helped ensure compliance with new laws at speed and at scale.
As the financial services industry increasingly embraced digital solutions, regulators raised concerns about the potential implications for data privacy and fraud. The regtech industry responded to these concerns, providing increasingly sophisticated automated solutions. These solutions helped secure and control the processing of personal data, while also helping to prevent fraud and money laundering. Regtech used to orchestrate a workflow of data checks meant financial services businesses could see risks associated with customers, and could make decisions about onboarding good clients and off-boarding bad actors.
On occasion, the financial services industry has been slow to adopt new technology and automated solutions as part of day-to-day operations. The rise of fintech disrupted this trend, and regtech has played its role in this disruption by enabling financial services businesses to reliably meet regulatory compliance, onboarding customers quickly and seamlessly, while taking a digital-first approach for the fast-moving digital economy.
Regtech compliance solutions
Regtech is particularly important with regards to KYC and AML processes, which require businesses providing financial services to verify a customer’s identity before they are onboarded, and to monitor networks for suspicious transactions.
Regulated financial institutions have a legal obligation to monitor client accounts and transactions for signs of fraud and money laundering. Most big banks and financial services businesses process too many transactions for humans to manually perform KYC and risk reviews on each client, let alone check each individual transaction to look for suspicious activity. This is the kind of task automation software is ideally suited for.
Automation of onboarding and risk monitoring processes presents a more efficient way to manage risk and compliance. It also delivers better customer experiences when regtech is employed to executive KYC and AML processes, because customers received a digital-first, convenient, and efficient compliance experience. The software is born in the cloud and borderless, the perfect solution in a global, digital economy.
Regtech automation enables financial services firms to maintain regulatory compliance while minimizing the amount of human intervention needed – whether that’s from the client's-side or the institutions'. By harnessing the power of automation, fintechs and other regulated businesses can replace manual effort, and ensure human analysts are brought into regulatory processes when they are needed for decision-making and judgement.
Now a critical component of the financial services and fintech infrastructure, regtech solutions are an indispensable part of the digital economy.
Get in touch
PassFort, a Moody’s Analytics company, enables regulated businesses to automatically manage their risk and compliance obligations, while delivering great customer experiences throughout the lifecycle of KYC. Onboarding is robust and efficient, and suspicious activity is flagged through perpetual KYC.
Our SaaS solutions reduced time and cost in the KYC and AML process, while streamlining the digital experience for customers and employees of financial services firms.
If you would like to talk to us about automating your KYC and AML processes, please get in touch – we would love to help.