The term “RegTech” is formed using the combination of the words “regulatory technology”. It refers to the use of any modern technology, such as software or cloud-based solutions which are used by financial institutions for better compliance with regulatory requirements. RegTech is a recent concept in the Indian Fintech and Insurtech industry. The fintech and the Insurtech industry is quite dynamic and with the ever-changing regulatory landscape, it can be challenging for financial institutions including Insurance to keep up with the latest regulations. RegTech is the management of regulatory processes within the financial industry. The main functions of regtech include regulatory monitoring, reporting, and compliance. It consists of a group of companies that help businesses comply with regulations efficiently and less expensively. RegTech (regulatory technology) is a class of software applications for managing regulatory compliance. Companies invest in RegTech as a way to save time and money, allowing resources that were once devoted to regulatory compliance to be diverted elsewhere, once RegTech takes over those functionalities. Regtech tools monitor online transactions that take place in real-time to identify irregularities or issues in the digital payment sphere. Any outlier is sent to the fintech company to analyse if fraudulent activity is taking place.
Functions of Regtech in Finance sector:
Regtech companies use technology to automate compliance processes, such as customer due diligence (CDD), risk assessments, and transaction monitoring, which helps financial institutions to detect suspicious activities and prevent financial crimes.A regtech firm can combine complex information from a bank with data from previous regulatory failures to predict potential risk areas that the bank should focus on. By creating the analytics tools needed for these banks to successfully comply with the regulatory body, the regtech firm saves the bank time and money.One of the main objectives of the RegTech industry is to provide technology-driven solutions to compliance challenges. This includes conducting in-house compliance processes, audits, and risk workflows in real-time. RegTech solutions can help financial institutions stay up-to-date with changing regulations and avoid fines and other penalties for non-compliance. They can also reduce the cost and complexity of compliance and free up resources for other business activities.
Tools of functioning for Regtech Companies:
RegTech companies are now engaging machine learning, natural language processing, block chain, AI, and other technologies in order to bring the power of digital transformation to the world of regulatory compliance. Regtech tools monitor online transactions that take place in real-time to identify irregularities or issues in the digital payment sphere. Any outlier is sent to the fintech company to analyse if fraudulent activity is taking place. RegTech uses new technologies such as Artificial Intelligence, Machine Learning and Robotic Process Automation (RPA) among others, to simplify regulatory reporting, management, and compliance. It offers numerous benefits both for regulators and regulated entities. While a single piece of technology often overlaps into different areas, there are generally six different categories of technology: communication, electrical, energy, manufacturing, medical and transportation.
Regtech in Insurance Sector:
RegTech allows insurance compliance professionals to work over and around legacy infrastructure impediments to connect and analyse information more smartly in order to understand where the organization may have risks and exposures based on a larger data population than was previously accessible. RegTech is designed to help firms automate the more routine compliance tasks and reduce operational risks associated with meeting compliance and reporting obligations. A perfect example of regtech is the electronic Know Your Customer (eKYC) process by which banks verify the identities of the people who open new accounts digitally. This KYC process is a major part of the banking
Reason for rise of Regtech in India:
A variety of factors has fueled this growth, but the main one is “looming regulatory burden.” The majority of regtech companies work with clients in the financial services industry; it’s the most heavily regulated, after all. RegTech has the potential to transform the Fintech industry in India by making it more efficient and effective. It can help financial institutions save time and money by automating compliance processes. The implementation of RegTech in the Fintech industry in India is still in its early stages. Regtech Market Is Projected to Grow at A CAGR of 17.55% During The Forecast Period, 2023-2029. The RegTech Market is segmented based on component, deployment type, technology, application, end user and region.
Regtech Vs Fraud & Risk Management:
Risk management solutions enable automated credit assessments to understand optimal exposure and limits. Whereas collaborating with RegTech solutions can deliver cost savings, and increased return of capital along with all regulatory and compliance needs. RegTech systems in risk management support risk data aggregation for capital planning and liquidity reporting, modelling, scenario analysis and forecasting with stress testing.
RegTech solutions in the areas of know your customer (KYC), real-time AML screening, AI/ML-based fraud prevention, and real-time compliance monitoring had the highest level of adoption by banks. Other areas, which are generating interest are, cloud computing for data standardisation, cleansing and provenance audit and board level governance, analytics dashboard and predictive analytics for advanced risk management and end-to-end automation regulatory reporting, AI/ML-based e-KYC, Real Time AML, sanctions screening and compliance monitoring.
Regtech Vs Regulatory sandbox:
Sandbox is a new innovation of customised reporting platform for firms looking to be compliant with the RBI, SEBI, IRDAI, PF etc. It also provides access to instant insights based on trading data so that decision-makers can make informed data-driven decisions and monitor best execution practices. It also serves the purpose to fulfil the long awaiting need of FIs for data governance—producing, experimenting with, and sharing data within small, isolated groups before deciding if that external data is worth cleansing and ultimately adopting for use throughout the organisation. A good data governance model enables powerful sandbox analytics.
Sandbox will enable more FinTech and Insurtech experimentation within a well-defined space within all the regulatory and governance support. Sandbox can help innovators to increase efficiency, manage risks and reduce go to market time within the regulatory framework.
Conclusions on Regtech:
By facilitating protection against regulatory risks, RegTech increases investor confidence. In case of most RegTech offerings, the usage of automated intelligence to detect red flags and control regulatory reporting has reduced the incidence of manual error, thereby increasing investor confidence. RegTech (regulatory technology) is a class of software applications for managing regulatory compliance. Companies invest in RegTech as a way to save time and money, allowing resources that were once devoted to regulatory compliance to be diverted elsewhere, once RegTech takes over those functionalities. In the Insurance arena Regtech is gearing up for providing services in the field of Underwriting and Risk management along with appropriate claims management and reduction of Fraud.