August 16, 2019
Globally, banks have 10–15% of their staff dedicated to compliance on average. According to a study cited in the Cost of Compliance 2018 Report, on average, regulatory divergence (costs, risks, impacts) costs financial institutions 5–10% of their annual turnover. This consumes senior management’s time, as well as capital that could otherwise be focused on identifying emerging risks in the financial system. Ultimately, these costs are a barrier to international growth – the findings conservatively infer more than $780 billion annually in costs to the global economy.
These challenges have given rise to a new kind of player – Regulatory Technology (RegTech) startups. Essentially, RegTech refers to a set of companies and solutions that use innovative modern technologies to facilitate the delivery of regulatory requirements more efficiently and effectively compared to existing compliance capabilities. RegTech, as a segment, has been witnessing immense interest and activity in the recent past – be it due to the huge fines for non-compliance being imposed by regulators across the world or the reputational damage resulting from these fines – especially for the large, well-known banks, or the realization of the huge potential cost savings and other strategic benefits.
Let’s look at the numbers: there are 771 RegTech companies operating around the world across 7 segments:
RegTech players have an advantage here. How? Consider that these players need to sift through massive amounts of data – both internal and external – in order to engage in analysis. This ...