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New research: using technology to support financial services regulatory compliance

New research on innovation suggests that RegTech providers are currently focused mostly on internal processes and associated compliance. The study recommends that RegTech providers begin offering solutions for the strategic management of regulations and not just pure compliance.

Regulations have since long been perceived as a hindrance for innovation and entrepreneurship. Decisions need to be made all the time to balance regulatory demands with innovation activities. As a consequence, firms often see regulations as something negative. As firms and managers look for solutions, technology is emerging as an enabler to comply with escalating regulatory requirements. The label “RegTech” is a newly coined term to embody the anticipated benefits of new technology supporting the compliance function’s work. But what support does RegTech provide to companies?

New research, conducted in part at the House of Innovation, focuses on the question what support does RegTech provide to companies? In this study a global set of 550 RegTech solution providers were analyzed to reveal which of the four main themes (Efficiency and collaboration; Integration, standards and understanding; Predict, learn and simply; and New directions) in the RegTech evolution they supported. Also, the support of specific financial services regulations is analyzed.

This study found three conclusions:

  1. RegTech is a complex and heterogeneous universe, and to understand it, a broad frame should be applied to support generic functions and processes rather than a specific product, processes, or organizational boundaries.
  2. The focus of RegTech providers currently is on internal processes and associated compliance with regulations currently in company development plans.
  3. There is a lack of focus on strategic management solutions and external integration support.

These findings support two major recommendations to RegTech providers. The first is to be more precise about the integration position of their solution, understanding the adjacent processes and regulations, and how their solution can be reused. The second recommendation is to consider offering solutions for the strategic management of regulations and not just pure compliance. Users of RegTech should first solve compliance demands, then consider potential generic reuse and thirdly consider the future solution architecture underlying the implementation of one of more Regtech applications.

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