Regtech – The Convergence of Compliance Culture and Innovative Technologies

Finance and Compliance Manager

Regulatory Risk has grown exponentially over the past five years. KPMG estimates that expenditure on compliance is growing, currently estimated at more than $70 billion in the US[1]. In interviews with customers, Bain & Co. found that Risk and Compliance can run nearly 40% of the costs in “change the bank” projects. In addition, it found that nearly three-quarters of onboarding requests never reach the final stage of account opening. This is inefficient and can cause uncomfortable situations with customers[2].

The certainty of this sector’s growth was made clear in a speech delivered by Andrew G Haldane, Chief Economist and Executive Director at the Bank of England, at the Federal Reserve Bank of Kansas City’s 36th economic policy symposium. He stated that over 70,000 new full-time jobs will be needed to comply with Basel III requirements, and compliance with 10% of the Dodd-Frank rules will require an estimated 2,260,631 annual labor hours, equivalent to more than 1,000 full-time jobs. This is only for 10% of Dodd-Frank![3]

The need for additional resources is not the only impact new regulations have on firms. The possibility of heavy fines incentivize companies to comply with the regulations or pay steep penalties.  For example, the EU’s General Data Protection Regulation (GDPR) has non-compliance fines of up to 4% of annual global turnover or €20 Million (whichever is greater). With such great risks eating into their bottom line, firms are scurrying around to find appropriate solutions to help them comply with this extensive data privacy law before its enforcement date of May 25, 2018. 

Regulatory Compliance + Technology = Regtech. 

Say hello to regtech. As the UK’s Financial Conduct Authority defines it, regtech refers to the application of technology to solve a specific regulatory problem.  Regtech solutions adapt to the ever-changing regulatory environment and as such they address a broad range of business and regulatory challenges.

With the rising costs of human capital and more complex and challenging regulations, firms need to reassess how they navigate the regulatory environment.  An innovative approach to these challenges is the use of artificial intelligence by way of robotics process automation (RPA) – the use of software to complete complex repeated processes typically performed by a human. KPMG mentions RPA as “an example that provides the capability to deliver real-time compliance and automated reporting”[4].

Because of the fluidity of the regulatory environment, regtech solutions have to be deft at adapting to changes and built with the flexibility not typically seen in more traditional products. In addition, they lean towards leveraging the “cloud”, and as such are more easily scalable with a lower cost of ownership.

To tackle GDPR and other impending regulations, regtech solutions will be leading the way to compliance. Get ready to jump on the regtech bandwagon. It’s right around the corner.

[1] KPMG – The Transformative Power of Regtech –

[2] Bain & Company – Banking Regtechs to the Rescue? –

[3] The dog and the Frisbee –

[4] KPMG – The Transformative Power of Regtech –

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