RegTech has experienced incredible growth and transformation over the past few years. Having co-authored *The RegTech Black Book* with Mona a few years ago, I’ve witnessed firsthand the evolution of RegTech from a novel idea in 2019 to an indispensable element of the financial landscape today. Back then, it felt like companies were no longer operating in silos but instead coming together to make regulations a friend rather than a foe. Fast forward to today, RegTech has not only matured but also expanded its influence into other industries, driven by new mergers and acquisitions (M&As), and a growing wave of globalized regulations.
The Rise of RegTech: 2019 and Beyond
When we first wrote about RegTech in 2019, it was a niche area, albeit one that promised significant potential. The concept of using technology to streamline compliance and regulatory functions felt revolutionary. Businesses worldwide no longer viewed regulations as a burden but were beginning to understand how technology could help them navigate this complex landscape. This paradigm shift allowed organizations to adopt a more collaborative approach, working in unison with regulatory bodies to improve processes.
By the time we released the second edition of the RegTech Black Book in late 2021, RegTech had undergone a materialisation period. What started as a financial services tool began to extend into other industries. Real-life examples from our book showcased how sectors like healthcare and insurance were adopting RegTech solutions to meet their regulatory demands. These early signs of industry crossover indicated a future where compliance solutions would not just be confined to financial services but become a universal requirement across sectors.
The Globalization of RegTech and M&A Activity
Fast forward to today, we see that RegTech is not just expanding across industries but is also being propelled by the forces of globalization. Regulatory frameworks are no longer limited to regional or national boundaries but are increasingly global. Europe, in particular, is setting the pace with regulations like the Digital Operational Resilience Act (DORA), the Artificial Intelligence (AI) Act, and the General Data Protection Regulation (GDPR). These pan-European laws leave little room for gold plating, where individual countries impose additional regulations on top of European standards. The result is a more harmonized regulatory environment across the continent.
This global shift also drives a wave of mergers and acquisitions (M&As) in the RegTech space. Technology solutions can scale up more quickly as regulations become more standardized across borders. Larger financial services and technology players are acquiring innovative RegTech companies to build their capabilities, resulting in more robust, more comprehensive compliance solutions
The Push for Efficiency in Compliance
Another trend we're seeing is a significant shift in how compliance is managed within organizations. Traditionally, compliance departments were tasked with ensuring that the company adhered to the regulations, often with minimal regard for efficiency. Compliance teams were typically viewed as cost centres, and the only solution to regulatory challenges was to hire more staff. This was especially true after the 2008 financial crisis when the sheer volume of new regulations overwhelmed many organizations.
However, as boardrooms and senior management began to focus on efficiency across all departments, compliance teams were no longer exempt. Instead of adding more staff, companies began to explore how technology could improve compliance efficiency. This has led to adopting lean operational practices, zero-based budgeting, and using RegTech solutions that can automate and streamline compliance processes.
A great example of this shift is the case of a Dutch bank that attempted to use artificial intelligence (AI) for anti-money laundering (AML) checks. Initially, the Dutch regulators rejected this approach, questioning the validity of using AI in such a critical regulatory function. However, after a legal battle, the bank won the case, marking a significant milestone in the acceptance of technology as a legitimate tool in regulatory compliance. This case not only validated AI in the regulatory space but also paved the way for other companies to explore new technologies in their compliance functions.
“Bunq wins AML case against Dutch Central Bank Dutch challenger bank Bunq has hailed a "landmark" verdict in the Dutch courts over the use of artificial intelligence (AI) for antimoney laundering processes."
The Role of Compliance Officers in a Tech-Driven World
One of the more exciting shifts we’re seeing today is in the role of compliance officers themselves. Traditionally, compliance professionals were seen as the gatekeepers of regulatory adherence, often working behind the scenes with limited exposure to the latest technological advancements. They were so focused on ensuring the company met its regulatory obligations that they had little time to explore the broader world of fintech, startups, or emerging technologies.
Today, however, compliance officers are finding themselves with more breathing room. With technology easing the burden of manual compliance tasks, these professionals now have the opportunity to explore new solutions, attend industry conferences, and stay updated on the latest trends. As a result, compliance officers are becoming more techsavvy, which is vital in an industry where innovation is rapidly changing how businesses approach regulatory requirements.
The Future of RegTech: Gen AI and Beyond
RegTech is no longer in its infancy. It has moved beyond the hype and is now a critical element of business operations across industries. With exciting developments on the horizon, such as AI-driven compliance and global regulatory harmonization, the future of RegTech is bright, and we’re only just beginning to scratch the surface of its potential.