Based on the applications of various technologies like automation and artificial intelligence, RegTech enables institutions to comply with regulations and to improve client identification, fraud detection, rule adoption, and data collection. It assists them to be more efficient, accurate, and flexible in dealing with the ever-changing regulatory requirements. Accordingly, the chapter aims to explore the potential of RegTech in various sectors (for example, healthcare, insurance, banking). In other words, it intends to study the role of RegTech in simplifying the regulatory compliances. This study will bring significant insights to researchers and policymakers by exploring the potential benefits of RegTech in diverse sectors to have efficient compliance landscape including efficient risk management. The chapter will also explain the challenges of regulatory compliances and how such challenges can be combated by integrating technology and regulation, i.e., by adopting RegTech.
Top1. Introduction
“It’s conceivable, not far in the future, that closed loop AI-driven financial ecosystems could emerge, where the extension of credit and other financial services, risk management and compliance through regtech, oversight through suptech, and remedial actions, will all be made by AI applications communicating directly with each other.”
Tobias Adrian (2021),
Financial Counsellor and Director,
Monetary and Capital Markets Department,
International Monetary Fund
For companies involved in the global market, rules and standards are essential to follow. They have to stick to strict regulations related to their industries. Failing which, they could lose customers, face fines, and get into legal trouble. Companies use a system called compliance management to comply with the rules and standards. However, because global regulations are always changing, it's tough for companies to stay updated. So, they are embracing automated monitoring and new technologies, which make up the world of RegTech(Chettri, 2022). Following rules is really important for all companies irrespective of their sizes. Regulations are getting more and more important worldwide. With technology advancing faster than ever, RegTech is predicted to be the protagonist of this decade by helping companies follow rules. By using automation to make things easier, work faster, and cost lesser, RegTech is likely to be a key player in the global economy (ibid.). As per the report of Bloomberg UK, by 2025, the global market for ‘RegTech’, will be worth $55 billion (Sian, 2023).
Regtech is the application of technology, especially information technology, to guarantee regulatory requirements are monitored and reported on in a way that is compliant (Bitterli, 2017). Regtech ensures that regulations are followed and streamlines regulatory procedures. This will be accomplished by implementing regulatory experts' control frameworks and standardizing processes across the entire company. Regtech is made up of two words, one, “technology” and another, “regulatory.” This indicates that the regulatory compliance will be performed more accurately and efficiently with the help of technology. Regtech is thus, based on the use of technology to manage regulatory procedures in the financial sector. In another words, financial services firms can automate the process of managing compliance activities with Regtech.
The primary functions of Regtech include compliance, reporting, and regulatory monitoring. It is in fact a group of tech companies that use automation to address issues in a technologically driven economy. Regtech makes compliance rules clear and consistent. It sets standard procedures, clarifies unclear rules, and improves quality while cutting costs. It helps ensure regulations are followed. Regtech provides benefits to both financial institutions and regulators. It increases comfort levels and ensures that the supervision is automated. At the same time, it also ensured that the transparency is maintained in the application of regulations. Real-time monitoring of activities is possible due to Regtech. This becomes more important for products that requires such kind of monitoring like self service desk. To automate the regulatory processes, RegTech uses various modern technologies like Big Data, Artificial Intelligence (AI) and Machine Learning. This leads to the efficient utilization of data. RegTech simplifies the work of reporting which in turn saves time and money. It provides the right information at the right place and hence reduces the manual work of a compliance team. Some of the major benefits of RegTech can be enumerated as follows:
- •
Monitoring internal controls and recognizing gaps
- •
Enhancing efficiency and commercial agility
- •
Recognizing and minimizing regulatory risks
- •
Mechanizing and restructuring the regulatory processes
- •
Minimizing costs of compliance management
- •
Confirming compliance in totality