RegTech may be defined as the use of data and technology to make regulatory compliance cheaper, faster and better. Its strategic deployment within a financial services organisation could enable both business development as well as business optimisation with the cost of regulatory change being reduced by 15-20 percent. These solutions lower systemic risk as firms are more secure and manage their risks more effectively, with better outcomes for customers and investors.
Over the last decade or so the RegTech industry has continued to expand rapidly with some estimates putting the compounded annual rate of growth at around 20% with the current market size estimated at around $9 billion. This is driven by a number of factors, first the rise in maturity of firms in this space and greater understanding of their potential by large financial services providers, second increasing regulatory compliance cost pressures for firms driven by the increasing volume of regulation. The rise of RegTech has been enabled by advances in technology and data models as well as a developing taxonomy which provides a better understanding of which solution can solve which problem. Finally increasing adoption of data and regulatory technology by regulators, which is referred to as Suptech is also enabling the greater uptake of RegTech solutions and leads to the possibility that future regulatory change could be accompanied by a technology and data roadmap to enable efficient compliance, the so called RegTech Test.
The level of RegTech adoption is growing across larger financial services firms but there are still significant barriers to higher levels of adoption. These barriers range from technological integration issues, lack of an institutional RegTech strategy as well as low levels of understanding, awareness and skills leading to budgetary and procurement issues. A demand led innovation laboratory could bring together RegTech start-ups, large financial service providers, regulators and academics to help devise a strategy to remove these barriers and enable greater adoption of RegTech solutions with a focus on the Glasgow City Region. This should enable greater GVA as unnecessary costs are taken out, as well as creation of higher skilled jobs enabled by improved deployment of technology and data. RegTech Associates estimates that the UK RegTech industry employs approximately 68,000 people, occupying a number of roles from software developing through to sales, marketing and finance. This amounts to 2.3% of all the jobs in the UK’s Technology Sector.
The evolution of RegTech could be seen as an example of data-driven innovation with the sophisticated use of artificial intelligence and machine learning to enable compliance, the use of technologies such as robotic process automation and natural language processing to boost the efficiency and accuracy of repetitive manual tasks as well as the use of biometric techniques such as optical character recognition to verify identity. All of these underlying techniques and technologies are constantly evolving and the demand led innovation lab could identify fundamental issues from the demand side that could be the subject of in-depth academic research. The proper adoption of RegTech within an organisation would require integration with existing systems and processes which could stimulate research into information systems design.
There will also be a need for skills development and upgrading to allow for the deployment of these new and developing technologies. The demand led innovation lab would be able to identify the key trends and create a roadmap for skills development that would enable the Glasgow City Region to provide the skilled workforce necessary for the rapid growth of RegTech .
Devraj Basu is Senior Lecturer in Finance in the Accounting and Finance department at Strathclyde Business School. His area of academic research is financial markets, covering equity markets, commodity markets and alternative investments, as well as quantitative finance. He has published in top ranked international peer reviewed journals as well as top industry journals. He is actively involved in Regtech having set up the Regtech Forum which bring together industry, academia and government both within Scotland and internationally. The goal of the Regtech Forum is to help understand the fast moving Regtech landscape and how Scotland and the UK can position themselves to become leading global players. He has helped design Strathclyde’s MSc in Financial Technology, the UK’s first master’s program in Fintech.
