The industry explains how Regtech has developed since the pandemic

The regtch space is in for a major shake-up, with FCANew consumer tax regulations come into force in two months. This provides an opportunity for financial institutions to adopt a new approach to compliance and regulation.
During May, we will examine the past and present state of regtech and compliance, and highlight experiences that will shape the future of the sector.

As with much of the financial industry, the pandemic completely removed what we knew digital constraints to be. The Rechtech field was no different. In 2021, the way the industry approached regtech changed. This continued into 2022. But to what extent? We reached out to the industry to find out.

A lifeline for those who work from home

To Allison Spanishsenior managing director, head of privacy at Guide post Solutions, the compliance solutions provider, one of the biggest reasons for regtech’s success was its applicability in a remote work environment. She told Fintech Times: “Regtechs really exploded during the covid-19 pandemic because they were a useful tool for a workforce that suddenly found itself working from home.

“Regtechs were able to connect colleagues and customers on a scale we hadn’t seen before. As technology improved and applications expanded, financial institutions became more and more comfortable using regtech in their business-as-usual operations.

“For example, where regtech was generally thought to be the domain of startups or fintechs, it has become widely used among more traditional financial institutions for critical functions. For example, know your customer verification.

“The use of regtech is only going to become more widespread in the financial industry. We should no longer see it as a tool for organizations willing to take a risk on new technology.”

There is no end in sight for evolution

Sully Perellachief executive at Schellmann, a provider of attestation and compliance services, looks at how companies adapted to the first wave of regtech’s evolution. However, he adds that they must continue to strive to adapt to evolving compliance and regulatory rules: “Regtech standards have changed since 2021/2022 and are set to continue to change.

“To work within the new and changing technologies of cloud environments and mobile technologies, the standards look at how to approach security from a risk-based perspective. This shift requires organizations to spend more time understanding the environment and the threat landscape. This is difficult. Nevertheless less, it gives them the ability to exploit new security controls that new technologies provide.”

The four most important areas of change

Elias Ghanemglobal leader for Capgemini Financial Services Research Institute, an in-house think tank focused on digital, innovation and technology issues, discusses the main areas affected by the change in regtech: “Within the payment space, the 2021/22 regulatory standards aimed to create a safer, faster, more efficient global payments market. The focus was on modernizing the industry and protecting users from malicious incidents. The regulations for 2022/23 are also concentrated on four main areas:

• Risk reduction: The regulation aims to mitigate the challenges with experimental and established payment methods, making the process transparent for users. We have also seen regulations introduced to simplify SME B2B transactions, for example digitization of supply and value chains and regulated B2B BNPL payment models.
• Standardisation: We see an increased focus on data use and privacy. The accelerated adoption of ISO 20022 ensures faster cross-border payments, improves compliance and reduces transaction costs.
• Competition and transparency: The main focus continues to be on antitrust regulations and maintaining transparency in global transactions.
• Innovation: The focus back in 21/22 was around contactless payments, laying the foundations for a global payment interface and optimizing open banking services. In contrast, 2022/23 emphasizes the optimization of data sharing and privacy. PSD3 is under consideration and aims to improve payment services, merge credit and non-credit transactions, improve open banking by improving APIs and improve data sharing with tertiary financial institutions.”

An absolute necessity

Compliance with regulations used to give you the advantage over those who did not. However, this is no longer the case. Following the regulations is now an absolute must, he explains Danny Crazyoperations manager and revenue manager, Clause matchthe regtech: “The rechtch market accounted for more than $8.2 billion in 2022. It is projected to grow to $57.5 billion by 2032, according to an analysis by Prophecy Market Insight.

“That’s largely because the regulations just keep growing. More focus is now on individual responsibility and behavior and culture in a company. Compliance is no longer a ‘tick-the-box’ practice, but companies are asked to prove how they comply.

“In recent years, things have become more personal. As a result, individuals in organizations are now held accountable for their actions or lack of action.”