RegTech refers to regulatory technologies that operate as software or applications. They support companies and institutions in the financial industry to respect regulations and regulatory requirements. They also enable businesses to reduce the expenses that would have been incurred and protect themselves against fraud and abuse.
In the financial sector, where banks and fintechs provide services to business and individual customers, RegTech tools are used daily to monitor transactions. In real time, they can detect criminals' endeavours, for example, related to so-called money laundering. After all, the technology identifies any abnormal activity.
They save time, money and mitigate risk
In practice, RegTech services are provided by specialised companies that use technology to monitor and report on the proper conduct of transactions or other processes. They cooperate with representatives of financial supervision and other regulatory authorities, providing them electronically with data and signals about any worrying situation. The institutions in question analyse whether there is an attempted crime, e.g. in digital payments. They intervene if it is detected.
"RegTech companies help banks and fintechs save time and money while reducing the risk of theft or the introduction of illicit funds into circulation. Without the support of regulatory technology and companies specialising in this field, screening transactions ordered by customers at banks and fintechs would prove to be, first of all, time-consuming, but also tedious and costly," lists Robert Blaszczyk, Head of Strategic Clients Department at Cinkciarz.pl, a company belonging to Conotoxia Holding.
Representatives of the RegTech industry can also offer assistance to all those who provide services online. This is because they identify potential areas of risk. They also create tailor-made analytical tools needed to comply with the regulations of national regulators or, for example, European Union guidelines.
"Without technological support, this would be more difficult and burdened with greater risks due to human factors. RegTech protects banks and fintechs not only from becoming victims of fraudsters but also from possible financial penalties for non-compliance with legal requirements and hard-to-quantify loss of good reputation," adds Robert Blaszczyk.
They are fast, independent and use the latest solutions
Regulatory technologies and companies specialising in their use and implementation are proving helpful in analysing immense databases that, on the surface, may be unrelated. They can then generate multi-level reports that are useful for optimising business operations. RegTech is characterised by speed, efficiency, security and process automation. The software and applications typically operate flawlessly and reliably. The important point is that regulatory services companies are characterised by their independence from institutions and regulators. They accept and execute orders with concern for the confidentiality of entrusted data and the interests of their clients. Through the cooperation of business and RegTech, the possibilities for fraud, online crime, and unknowingly breaking or circumventing regulations are reduced.
"Although the industry has a short history of barely a dozen years, it probably has significant potential and growth prospects. It is expanding with the increasingly widespread digitalisation of services (including financial services), the popularity of online transactions and growing competition in this market. At the same time, RegTech is able to adapt regulations and legal frameworks on an ongoing basis for entities offering, for example, online money transfers, currency exchange, payments, accounts, payment card settlement, etc. This happens because it is based on new IT technologies, the cloud, artificial intelligence or blockchain: the decentralised and distributed database on which cryptocurrencies are based," explains the Head of the Strategic Client Department at Cinkciarz.pl.
They offer ready-to-use solutions and integration systems
RegTech companies respond to the needs of those required to implement fraud prevention standards and norms. Banks and fintechs are affected by problems caused by the lack of adequate systems and controls for anti-money laundering and fraud prevention. As a result of regulators' inspections, many institutions have been fined and ordered to immediately fix their AML mechanisms, which can be linked to image damage and the huge cost of remediation efforts.
"The implementation of our solution is a response to increasing regulatory requirements. If you work in compliance, AML, risk management, anti-fraud or are a board member responsible for these areas - our solution is for you. It's a product that will help you achieve and maintain regulatory compliance in your company," is how one company specialising in RegTech profiles its offering: BigScreen Defense Ltd. (a company of the Conotoxia Holding group).
Establishing a relationship between a bank or fintech and a regulatory technology specialist starts with making contact. Once the terms of cooperation have been agreed, if applicable, there is testing and then integration of the client's operating systems with the RegTech software or application. The best companies in the industry usually also offer training in their use. This enables them to take full advantage of, among other things:
- a machine learning system for fraud detection,
- sanction list verification,
- verification of PEP lists (Politically Exposed Persons - PEP status is given to people who hold politically exposed positions or significant public functions),
- adverse media scrutiny,
- automated risk assessment,
- transaction monitoring.