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RegTech adoption is accelerating fast, but who’s in the driving seat?

12 Jan 2023

There is no mistaking the accelerating upward curve of technology placement in regulated environments. According to Bloomberg UK, the global market for regulation technology, commonly referred to as ‘RegTech’, will be worth $55 billion by 2025. So what is driving the growth in RegTech adoption?

What seems clear is that there is no single driver, with regulators, investors and future-focused firms all playing their part for a number of reasons. In this article, I’ll examine the multiple factors behind the growing role of RegTech.

The liability of legacy processes

Where there’s an absence of RegTech, high administration and labour-intensive manual processes are a cause of concern for many companies because of the number of associated risks – from inaccurate data due to human error, to increased exposure to corruption and fraud; from lost documents and incomplete audit trails, to the inability to track and analyse trends over time.

RegTech is key to keeping up with ever-changing compliance regulations and managing the risk of a violation. Outdated processes, like back-and-forth emails and repetitive form submissions, simply can’t keep pace with the speed of change. According to Kofax’s research, average investor onboarding processes take about 41 days to complete. This delay costs time, and with it there are significant downstream complications, including investor churn and missed investment opportunities.

The difference in efficiency between manual compliance processes and RegTech is being noted across the industry. Investors are questioning managers who don’t use RegTech, and, as a firm, if you can’t demonstrate your controls at the touch of a button to an auditor or regulator, it raises a lot of questions as to what else you’re not doing in an organised fashion.

Equipping a modern workforce

When traditional methods are discussed, so too is staff morale. Repetitive, administrative tasks take their toll when your team could be working on far more important projects. From research conducted by the FCA, we know that there is a net satisfaction of 95% for businesses who implement RegTech.

Businesses are recognising that the key to success is a combination of robust systems and qualified people. And when talented employees are handed modern tools to complete their work, firms have a better chance of retaining them.

Sharing the load

Given the extent of the compliance burden facing financial services firms these days, it’s no surprise that they’re increasingly looking for outside help to adhere to the current demands, as well as what additional expectations might come down the line.

The growing trend of outsourcing components of back- and middle-office operations is further driving the use of RegTech. If your firm makes a decision to partner with specialist providers, it’s commonplace for them to utilise specialist systems, so as an outsourcer you benefit from expertly trained users leveraging tech on your behalf, as well as not having the outlay or hassle associated with onboarding additional service providers.

The market is not short of supply of RegTech solutions compared with ten years ago, but you need to choose carefully. Many platforms promote their ability to help with regulatory compliance, but there will always be a point on the delivery spectrum that highlights limitations. Where do responsibilities begin, end, or become grey? Forward-thinking firms should assess core priorities and lead searches based on that list, in that order.

The impact of legislation

Legislation in the UK and EU is now making individuals personally accountable for the compliance failings of firms, adding significant impetus to ensuring things are done correctly.

Penalties are already being applied – for example with the UK’s Senior Managers and Certification Regime (SMCR), which holds senior managers accountable in all UK regulated firms, large or small. In this context, as a senior manager, if you don’t choose to utilise the RegTech tools available in the market, you’re putting your own neck on the line. You are the risk!

Sensible and appropriate options to mitigate risk are within reach right now. That’s not to say that by “just buying something” you’re safe from accountability – in fact the opposite. Senior managers leading significant functions need to demonstrate they have taken all reasonable steps with robust evidence. It’s important to find the right balance between systems and expert people to ensure ongoing compliance.

Investor expectations

Beyond industry regulations, the surge in RegTech is primarily being driven by investor expectations. Across the board, investor expectations for a seamless customer experience via technology-based services are rising. The Millennial and Gen-Z generations have been pushing for this shift to digital compliance processes, but seasoned investors are equally (if not even more) concerned about digital access.

RegTech allows firms to differentiate themselves from their peers to attract capital, as well as achieving the necessary compliance, which is putting pressure on more asset managers to make the shift to compliance software. According to The Global City’s research, 68% of respondents said regulated firms need to adopt RegTech as part of their supervisory process.

Roubini ThoughtLab’s Wealth and Asset Management 2022 report shows that investors are looking to manage their money the same way they shop, socialise, communicate and learn. At IQ-EQ, our own MaxComplyTM user feedback has shown us that user journeys sit right at the top of the list for what people want from an advanced digital compliance platform.

Digital onboarding: getting that first step right

Digital onboarding is among the most critical areas of RegTech, with the UK’s Financial Conduct Authority (FCA) recently noting that after the pandemic, an increasing number of firms turned to KYC digital onboarding checks for remote customers. The rise of digital onboarding has also been reflected in Financial Action Task Force (FATF) guidance, citing that it could enhance customer experience, increase levels of security and lower risks compared to traditional procedures.

RegTech has the power to shorten investor identification and verification to approximately 15 minutes – compared with a process that historically could have taken weeks, or even months.

Talk to IQ-EQ

The cultural shift to tech-enabled investor onboarding has arrived, and IQ-EQ can help keep your firm competitive with MaxComplyTM.

Contact our team today to learn how you could benefit from the world’s leading risk and compliance workflow technology.

Dev’s insights were recently published as part of a RegTech feature in BL Magazine. Click here to read the article.

Working with IQ-EQ has been seamless – you and your team understand our business, advise us appropriately, and handle your side of our collective partnership so that we can focus on making good investment decisions. Evan Gibson SVP, Merchants Capital

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