How RegTech Can Safeguard the Technology-led Financial Revolution

By Anastasia Dokuchaeva, Head of Partnerships, ClauseMatch

The extraordinary rise of financial technology (FinTech) in recent years has been a game-changer for the financial services industry as it has disrupted the industry and vastly improved the range of services available to consumers. Today, FinTech enables consumers to pay for goods via their smartphones, transfer money internationally within minutes, and track spending in real time. Only a decade ago, these kinds of activities were impossible.

While the FinTech revolution is clearly exciting from a consumer’s point of view, the rapid speed of change within the financial services industry has also introduced risks. The fact that the FinTech industry has been lightly regulated up to now has meant that many companies have developed innovative products without always focusing on the most important issue of all – consumer protection. There is no doubt concerning the risks associated with financial technology are significant and include threats to data privacy, security violations, cyber theft, and even systemic risk. So, how can we mitigate these risks?

Enhanced FinTech regulation

One thing that we’re likely to see in the years ahead is an increase in regulation aimed at financial technology. Regulatory authorities have realised that there are significant risks associated with new technologies and they are already taking action in an effort to protect consumers. Last year, both the European Commission and the European Banking Authority (EBA) published action plans to tackle FinTech regulation in 2019, while the US Treasury Department produced a 200-page report on non-bank financials, fintech, and innovation that included 80 separate recommendations.

Increased regulation within the FinTech space will introduce further challenges, however. Many FinTech companies simply don’t have the resources to handle complex regulation. Just look at banks today – the pressure placed on compliance personnel is immense. So, how can we find a balance between innovation and regulation?

The RegTech advantage

Regulatory technology (RegTech) could be the key to success here.

With FinTech regulation set to increase sharply in the years ahead, it will be vital that companies have robust compliance practices in place that can handle increased regulatory requirements. Leveraging the power of RegTech, in order to ease the burden, will be extremely important.

The advantage of RegTech is that it can drastically reduce manual workload by automating and streamlining processes, while also adding transparency to the entire compliance function. Highly effective across a broad range of compliance processes, including identity verification, fraud detection, data protection, and document management, RegTech can play an integral role in helping companies deal with compliance more effectively. “80% of the cost of transaction is the cost of compliance” – this thought was voiced at one of ClauseMatch expert events, and it is so true. As FinTech regulation ramps up, those not using RegTech will be at even bigger disadvantage.

The years ahead are likely to be an exciting time for the FinTech industry. Having adequate safeguards in place that protect consumers will be one of the keys to success. As FinTech becomes more regulated, RegTech will play an ever-increasing role.

Anastasia Dokuchaeva will be speaking on the panel 'AI Innovation in Focus: Competitive Edge, Governance, Ethics and Regulation' during the 2019 Innovate Finance Global Summit. For more details on the agenda, click here.