How RegTech Works in the Financial Market

The financial crisis of 2008 brought in a rise in the oversight of the financial sector. The transformative use of innovation within the financial industry has also been increasing.

This has contributed to a surge in fintech firms’ percentage of developing technology-driven products to increase consumer engagement with financial institutions. Reliance on customer data to create digital products has led to concerns among regulatory authorities calling for further data privacy usage and distribution regulations.

The need for regulatory technology has been brought on by developing more regulatory initiatives and regulations with a more technology-dependent market. Read on to learn more about RegTech and how it operates in the financial market.

How RegTech Works in the Financial Market
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What Is RegTech?

RegTech is the technological management of regulatory processes within the financial sector. RegTech’s primary roles include regulatory tracking, reporting, and enforcement. It is also referred to as regulatory technology.

RegTech comprises a network of companies that use software-as-a-service ( SaaS) cloud computing technology to assist organizations complying with regulations effectively and more affordably.

Since about mid-2018, deregulation in the United States has led to a downturn in RegTech company funding transactions, as seen in the loosening of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) rules. However, the compliance challenge could still intensify the move to greater automation.

How Does RegTech Work

RegTech is a group of tech companies that, through automation, resolve issues emerging from a technology-driven economy. The rise of digital goods has boosted increased data breaches, cyber hacks, money laundering, and other illegal activities.

RegTech decreases the hassle to an organization’s compliance department by providing data on money laundering activities carried out online through big data and machine-learning technology. Due to the emergence of underground marketplaces online, these are activities that a typical compliance team might not be subject to.

To detect problems or anomalies in the digital payment sphere, RegTech instruments aim to track transactions that take place online in real-time. To evaluate and assess whether an illegal activity is taking place, any outlier is reported to the financial institution.

The risks and expenses associated with missing funds and data breaches can be reduced by institutions that detect possible financial security threats early on. RegTech firms partner with financial institutions and regulatory bodies, exchanging information by utilizing cloud infrastructure and big data.

How RegTech Works in the Financial Market
Image Source: Industry Wide


It may be too complicated, costly, and time-consuming to comb through a bank that receives large data quantities. To predict future risk areas that the bank should concentrate on, a RegTech company may combine detailed information from a bank with data from past regulatory failures.

The RegTech firm saves the bank time and money by effectively developing the analytics tools required for these banks to comply with the regulatory authority. The bank also has an efficient tool for dealing with the rules laid down by the financial authorities.

Characteristics of RegTech

Some of RegTech’s significant features provide agility, speed, integration, and analytics. Via extraction and transfer load technologies, RegTech can quickly isolate and arrange cluttered and intertwined data sets.

To produce reports quickly, RegTech can also be used. It can also be used to get solutions running in a limited period for integration purposes. Finally, RegTech uses computational methods to mine and use big data sets for specific applications.

Final Words

In different areas of the financial and regulatory domain, RegTech works. RegTech automates a range of initiatives, including employee monitoring, compliance data management, fraud prevention, and audit trail features. A RegTech company can’t just work with any financial institution or regulatory body, although it may have distinct priorities and objectives that vary from the other entities.