Compliance Made Easy: 7 Reasons Why RegTech is Important
Compliance Made Easy: 7 Reasons Why RegTech is Important
RegTech: It's not just about checking boxes. It's about revolutionizing how we comply. Discover its importance.
Fintech
February 7, 2024
Mobinul Islam Riyadh
Sadman Sakib Khan
Sadman is a marketing professional and a fervent devotee of the ever-evolving world of marketing & technology. Possessing a knack for crafting compelling narratives, Sadman passionately engages in the creation of top-tier content in close partnership with esteemed subject matter experts.
Staying on the right side of regulations has become a herculean task for financial workers. The demands for compliance continue to scale to new heights. Regulatory Technology, or RegTech, has become a rising star on the fintech horizon. It is transforming how financial institutions tackle compliance hurdles.
In this post, we will take a closer look at the importance of RegTech. We will explore its origins and learn the benefits it brings to the table. In the end, you will learn how RegTech is painting the compliance canvas in the financial sector.
What is RegTech?
In case you didn’t know, RegTech stands for “Regulatory Technology.” The term was introduced in 2015 by the UK’s Financial Conduct Authority. Think of it as a tech-savvy cousin of fintech but with a different mission. While fintech jazzes up products and services, RegTech is more behind the scenes. It focuses on making companies follow rules and regulations more smoothly.
To ensure smooth compliance, RegTech solves issues like Anti-Money Laundering (AML). Therefore, companies can stick to the rules without breaking a sweat. Apart from banks, RegTech spreads its wings to various fields like healthcare.
So, in a nutshell, RegTech is all about using technology to help companies be rule-abiding citizens in the business world. It is popular where playing by the rules is a big deal. Interestingly, customers don’t even realize it is there.
The 3 Key Pillars of RegTech
With the 3 C’s, or 3 pillars, RegTech runs the regulatory world smoothly with a touch of technology. These pillars are the building blocks of Regtech. Let’s break it down:
+ Cost: This pillar is all about efficiency. It plans out the operations of the company. RegTech neatly organizes processes. It makes sure people do what they are best at. As a result, there won’t be the headache of dealing with endless spreadsheets.
+ Customer: This pillar of RegTech ensures customers feel like VIPs. RegTech is not just for companies; it is for the people too. By satisfying customers from every end, RegTech provides a top-notch experience. It is like the friendly face that says, “Hey, we care about you!”
+ Compliance: This one is the rulebook guardian. The prime task of RegTech is to ensure companies follow the rules. In addition, it keeps proof that they are doing it right. RegTech is a trustworthy friend who always reminds you to stay on the right side of the law.
The Importance of RegTech: 7 Reasons Explained
RegTech offers practical solutions for everyday compliance. Apart from that, there are some specific benefits of using RegTech, which can’t be obtained using anything else. Let’s explore 7 reasons why RegTech is important in the financial sector.
01. Efficiency Boost with Automation:
RegTech is more than just a tech upgrade; it is a game-changer for businesses. RegTech automates processes for companies. As a result, they can meet tough compliance standards without the headaches of manual work. Overall, RegTech makes everything faster and more accurate.
02. Fortified Risk Management:
Think of RegTech as a fortress against risks. Using smart algorithms, companies can spot potential issues before they become problems. To them, RegTech is a shield and a sword—defending against risks and staying one step ahead of the competition.
03. Cost Savings Magic:
RegTech doesn’t just save time; it saves money too. Automated processes mean fewer resources are spent on manual tasks. Plus, it reduces the necessity for hiring extra hands. RegTech cuts down on training costs and reduces the risk of costly fines.
04. Customer Experience Upgrade:
As said earlier, one of the 3 pillars of RegTech is customer. So, their satisfaction is paramount for RegTech. By automating compliance, businesses can focus on what customers need. RegTech is a personalized service that meets regulatory requirements. Additionally, it adds a touch of convenience for consumers.
05. Data Insights for Smarter Decisions:
If you think RegTech is all about following rules, then you are wrong. It encourages you to understand your data. Through advanced analytics, RegTech gives deep insights to businesses. Therefore, they can spot trends in real time. Ultimately, they can make informed decisions on regulatory compliance measures.
06. Security and Privacy Assurance:
In addition to maintaining rules, RegTech safeguards sensitive info. It uses tech like biometrics and blockchain. As a result, businesses can confirm that only the right people access data. So, RegTech keeps both businesses and users in peace of mind.
07. Speeds Up Know Your Customer (KYC) Processes:
RegTech doesn’t like waiting around. It speeds up KYC processes from days to minutes. It makes onboarding a breeze. It is like having a fast-track lane for administrative tasks. Therefore, financial institutions can make quicker decisions on risks and creditworthiness.
How RegTech is Transforming the Financial Sector
Since the invention of RegTech, we have been noticing changes in the financial sector. RegTech is breathing fresh air into the financial world. Here is how it is shaking things up:
Compliance with Automation
RegTech is not a fan of paperwork. It automates compliance tasks like customer due diligence and reporting. This is how it makes life easier for financial institutions.
By doing the heavy lifting, it cuts down on errors and penalties. Automation can cut compliance expenses by up to 50%, per a Deloitte analysis.
Fueling Financial Innovation
RegTech slashes compliance costs and complexity. This innovation catalyst can free up resources for financial institutions. Hence, they can be creative in making rules that are more suitable for customers.
According to the World Economic Forum, RegTech reduces the time and cost of compliance to fuel innovation and growth. Therefore, fintechs can stay ahead in the innovation race with RegTech.
Supercharging Risk Management
RegTech doesn’t just follow rules; it is a risk detective. It analyzes data and gives real-time alerts. So, financial institutions can tackle fraud, money laundering, and other financial crimes.
The Financial Stability Board claims that RegTech can provide more accurate and timely data for better risk management. RegTech is like a vigilant guardian for financial institutes.
Customer-Friendly Onboarding
Customers are one of the 3 C’s of RegTech. So, it is all about making customers smile. It simplifies onboarding and KYC processes. By eliminating hassles, it lets customers open accounts or apply for loans.
A McKinsey analysis states that RegTech can boost customer satisfaction by 20%. According to the same analysis, it can also reduce onboarding delays by as much as 90%.
The Importance of RegTech in Fintech
Agility is the prime concern in the fintech industry. Here, RegTech is like the trusted sidekick. It runs everything as smoothly as possible.
The following facts will explain why RegTech is a big deal for fintechs.
Handling the Regulatory Maze
Fintechs are always cool in the financial block. However, they often find themselves in a regulatory grey zone. With RegTech, they get a reliable guide through the complex world of rules. For fintechs, it is like having a GPS for regulations. RegTech is crucial when they don’t have a massive team or tons of expertise.
A Make or Break for Fintechs
For fintechs, playing by the rules isn’t just important; it’s make or break. The Cambridge Centre for Alternative Finance says that in 2020, nearly a third of fintechs saw regulatory compliance as their biggest challenge.
Therefore, fintechs can’t mess up regulatory compliance. Otherwise, they will face serious financial and reputational damage. RegTech steps in as a savior. By keeping mistakes at a minimum level, it confirms everything is in order.
Automating Compliance
It is not like you are ticking the boxes of rules when it comes to RegTech. Lives become easier for individuals who work in the financial industry.
By automating compliance processes, it takes the load off fintechs. RegTech is a virtual assistant for them that handles the nitty-gritty details. What’s more, it reduces those pesky penalties for them.
Freedom for Fintechs to Innovate
In the fintech world, innovation is the key to staying ahead. RegTech comes to the rescue by freeing up resources. By clearing the path, RegTech allows fintechs to focus on what they do best—innovating and growing. They don’t have to deal with regulatory heavy lifting. Ultimately, they can dream big without the compliance nightmares.
In Closing
If you have made it this far, you should understand that the importance of RegTech extends beyond mere compliance checkboxes. RegTech has become an invaluable ally for businesses for the above reasons. It can successfully handle the complexities of the finance sector and other highly regulated industries.
With RegTech solutions, companies can not only create robust environments but also assure international regulatory compliance. If you are still wondering why RegTech is important, the answer is crystal clear – it is the key to a compliant and secure financial industry.