Strategic Analysis of RegTech: A Billion-Dollar Opportunity

RegTech refers to a set of companies and solutions that address regulatory challenges across industries, including financial services, through innovative technology. RegTech solutions are agile by nature due to the complexity and momentum of regulatory transitions. Traditionally, the technology was developed to be robust. However, RegTech can’t afford the luxury to deliver a solution for static requirements—it has to be a self-learning machine.

In general, regulatory documents are 100-plus pages long which are not clearly legible. Furthermore, references to multiple documents including previous versions of legislations make them difficult to comprehend. The London-based HDFC bank spent $2.2 billion on regulation and compliance in the first nine months of 2015, up 33% year on year. It is worth noting that this is just the spending on being compliant, let alone the large fines paid by financial institutions for being non-compliant.

Post recession, banks in the US alone have shelled out more than $160 billion as fines, penalties and settlements for non-compliance of regulations.

According to a survey by a financial brand, risk management, regulatory and governance is the third-most important priority for financial institutions globally, post investment in digital channels and product innovation.

The global demand for regulatory, compliance and governance software is expected to reach USD 118.7 billion by 2020. It is expected that close to 55% of the spending will occur in consulting and business services. North America is expected to overtake Europe and Asia Pacific when it comes to spending in regulatory software over the next five years. At present, close to 35% of the software spending happens in Asia-Pacific. Investments in regulatory software can lead to an ROI of 600% plus with a payback period of less than three years; yet, most financial services firms have not subscribed well to RegTech solutions.

There are more than 6,000 small, medium and large enterprises globally offering governance, risk management and compliance solutions globally. MetricStream, Nasdaq, Rsam and EMC are the top players in the GRC technology market when it comes to product offerings. RegTech (emerging firms) currently operating in the market play multiple roles such as content aggregators and providers, where each and every regulation is understood by an expert, then decoded and are laid out as simple rules. These firms provide access to simpler regulations through software. Firms also support their clients in developing reports as per the jurisdictions requirement; thereby, saving a lot of time and money where firms otherwise spend on regulatory experts.

The defining feature of RegTech firms is that the solutions are cloud-based. As a result, the solutions provide cost advantages, are flexible and scalable. Furthermore, RegTech firms have managed to better put to use analytics and artificial intelligence unlike traditional firms. Another major difference is that traditional player’s solutions are very rigid and any change in regulation requires significant changes to be made in the system’s code which are costly as well as time-consuming. However, the biggest difference between a traditional compliance software vendor and the RegTechs is the business model. RegTechs have innovative business models in place such as percentage of funds under administration, pay-per-use, etc. while traditional players charge for the license. Furthermore, RegTechs have been very successful in striking partnerships with content partners such as law firms and consultants to bring down the cost of the solution.

Table of contents of the report titled RegTech – The Next Billion-Dollar Opportunity:

Section 1: Financial Regulations, Risk & Compliance Overview

  • Introduction to RegTech and the Need for it
  • Major Financial Regulations in Different Geographies, Impact & Drivers

Section 2: Regulation, Risk & Compliance Market Potential

  • RegTech Market Potential
  • RegTech Market Growth Prospects (2015 to 2020)
  • RegTech Market Potential by Regions (North America, South America, Asia, Europe, MENA)
  • RegTech Market Potential by Financial Institutions Tiers
  • RegTech Market Potential by Type of Expenditure
  • Key Reasons for Financial Institutions to Spend on GRC Software
  • Estimated ROI: Investing in Regulatory Software

Section 3: Incumbent Players Analysis

  • Incumbent Vendors in Compliance Technology (GRC): Market and Product Comparison

Section 4: Innovators

  • Why Is RegTech Important?
  • Startups and Their Solutions: Technology Used, Customer Segment
  • Comparison of Key RegTech Innovators (Investments, Partnerships)
  • How Are RegTechs Different From the Incumbents?