Regtech or regulatory technology first emerged as a spin-off to the fintech industry, and it now serves the financial services and beyond. Regtech plays a critical role in the risk and compliance space – used in the fight against financial crime, it helps prevent money laundering and terrorist financing while enabling good customers to enjoy better compliance 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 and companies that must comply with know your customer (KYC), anti-money laundering (AML), and counter-terrorist financing regulation. Failure to comply with these laws can lead to significant financial penalties and reputational damage, so the role of regtech is significant.
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 businesses could see risks associated with customers and suppliers and could make decisions about onboarding individuals and entities within their risk tolerance thresholds, while off-boarding those deemed too high risk.
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 businesses to reliably meet regulatory compliance, onboard customers using automation, while supporting a digital-first approach for the fast-moving world.
Regtech is particularly important with regards to KYC and AML processes, which require businesses to verify a customer’s identity before they are onboarded and monitor business networks for suspicious activity or ongoing risk.
Regulated organizations have a legal obligation to monitor risk across their network of customers and suppliers, looking for signs of fraud, money laundering, and other suspicious activity. Most large organizations process too many transactions for manual KYC to be effective - this kind of data gathering, and assimilation task is ideally suited to automation software.
Automation of onboarding and risk monitoring processes presents a more efficient way to manage risk and compliance. It also delivers better customer experiences because customers received a digital-first, convenient, and efficient compliance experience. Customers aren’t asked for unnecessary or irrelevant information, and they don’t have to continually provide updated data on an ongoing basis. As the regtech software is born in the cloud and borderless, it is a perfect way to create a virtual KYC ecosystem for a global market.
Regtech automation enables organizations to maintain regulatory compliance while minimizing the need for manual intervention – whether that’s from the customer’s-side or the institutions’. By harnessing the power of automation, regulated businesses can replace manual effort on quotidian tasks, and ensure skilled analysts are brought into processes when they are needed for decision-making and judgement.
Moody’s Analytics Know Your Customer (KYC) is transforming risk and compliance, creating a world where risk is understood so decisions can be made with confidence.
Our customers build their own regtech ecosystem using our workflow orchestration platform, leading datasets, analytical insights, and integrations with global providers to create flexible solutions.
Harnessing our innovative technology and industry expertise, Moody’s Analytics automates accurate screening and swift onboarding of customers and third-parties. We continue our support throughout the customer lifecycle by enabling perpetual monitoring of risk across global business networks in near real-time.
Get in touch to talk about developing your own regtech solution for KYC – we would love to hear from you.