The wide-world of fintech
The world of financial technology, or fintech, is huge in more ways than one. In 2020 alone, venture capital invested $42 billion in nearly 2,000 FinTech deals, and that was during a global economic slowdown.
It’s not just the amount invested in fintech that’s massive. The scope of digital services encompassed within the term is big too. Everything from retail to business banking, mortgages to insurance, wealth management to online payments can come under the fintech umbrella.
Investopedia defines fintech as helping “…companies, business owners and consumers better manage their financial operations, processes, and lives by utilising specialised software and algorithms that are used on computers and smartphones.”
This definition covers a lot of ground, but the word that’s really interesting here is “specialised”. And it’s that idea of specialism which essentially explains why regtech is not the same as fintech. It’s why regtech deserves its own definition, discussion and place in the ecosystem.
Regulatory technology (regtech) is of course used by fintechs and financial services companies. It’s used to support execution of compliance policies; for risk management; and in prevention of financial crime.
Regulation across different jurisdictions, the way that applies to different products and customer types can be complex and time-consuming to control. Plus, the stakes are high when it comes to compliance - there can be hefty fines for firms, and responsibility for non-compliance can fall on an individual's shoulder, in extreme cases leading to prison terms.
So using tailored digital solutions that account for these complexities and that mitigate against certain outcomes is really important. Regtech can help standardise and control compliance processes, give teams more time and ability to manage risk, and it can aid audit and reporting.
Regtech helps firms and compliance professionals better meet their legal obligations, plus, it helps protect customers and a business as a whole.
It can also add value in other areas, for example by driving operational efficiency and creating better customer experiences.
The right tool for the job
The “specialism” in regulatory technology comes in understanding what compliance teams need to achieve; what issues they are facing; where the friction lies in compliance processes; what risk factors need to be managed; and how teams work together in a company.
Regtech provides the specialist tools designed to meet the requirements of compliance professionals.
Similar to the way legal tech has emerged in recent years, regtech is now coming into its own. Lawyers have specific cases or matters to work on, and these relate to their area of law. The technology they choose is therefore designed with these matters in mind.
For example, M&A lawyers will use a virtual data room (VDR) for execution of a transaction or deal. The VDR technology will have been designed to help lawyers prepare for and execute due diligence on a company being bought and sold. Hundreds of documents will be loaded, indexed and secured in an online filing system, which enables parties involved in the deal to access documents and make key decisions.
Would these lawyers and the parties they represent trust a non-secure, non-specific technology to support their multi-million-pound deal? Let’s hope not.
No, they would choose the right solution for their transactions; they would choose the right tool for the job. Using technology designed and built around a specific legal process makes complete sense, and so does using regtech designed for compliance processes.
Specialist regtech solutions
It’s a waste of time and a false economy to try and use technology that hasn’t been specifically engineered from the user backwards. The right regtech will be designed to meet the specialist requirements of a compliance team and the processes they work on.
Know your customer (KYC), as an example, has a set of detailed requirements, which will include checks, tasks and escalations associated with the process.
· KYC will be built around a compliance policy
· There will be risk appetite to factor in
· Individual or company checks need to be made
· Regulations for different jurisdictions must be considered
· Team members roles and responsibilities defined
· Escalation and reporting lines made clear
· Policies tested
· And ongoing reviews scheduled
Compliance processes, like KYC, and the people executing them deserve their own specialist solutions, and those solutions live within the world of regtech.
Get in touch
Please get in touch with us at PassFort to discuss a regtech solution for your specific KYC and AML processes.
We can help you and your compliance teams digitise policies, automate a workflow of checks and drive risk-based decision making about different customer profiles.
Hope to hear from you soon!