Within the tech world, financial technology has been branded its own niche of FinTech. As what falls under fintech has broadened to include subsectors such as mobile banking, consumer focused trading platforms, P2P trading, crowdfunding and low-latency connectivity, many of these specific fields are receiving their own individual names and focus.
One of the fast growing areas of these new fields is regulatory technology, or also known as "RegTech". The driver behind regtech is a response to new regulation such as Dodd-Frank, EMIR, BASEL and MiFID II that have been initiated following the global financial crisis of 2008-09. As complying with regulation becomes tougher, regtech providers have been cropping up to provide efficient solutions to these new problem.
Cappitech, RegTech and Deloitte
To keep pace of the innovation, Deloitte has recently published a ‘RegTech Universe’ map. Calling regtech the “little brother of FinTech”, Deloitte explains that this industry “promises to disrupt the regulatory landscape by providing technologically advanced solutions to the ever increasing demands of compliance within the financial industry”.
Covering 80 firms, the Deloitte universe is comprised of five sections, Regulatory Reporting, Risk Management, Identity Management & Control, Compliance and Transaction Monitoring. Among these groups, Cappitech is excited to have been noted and included among the eight regulatory reporting firms.
We describe the five sub-groups of regtech
Regulatory Reporting – The smallest of the five groups, regulatory reporting provide technology to assist with complying with reporting requirements enacted by new regulation. In Cappitech’s case, our technology can help create and submit trade transaction reports for EMIR, MIFID and ASIC derivative reporting via our Capptivate platform (more on the Capptivate).
Other regulation with reporting requirements have been implemented across the insurance, asset management and banking industries. These reports cover capital ratios, risk exposure, administration expenses and investment returns.
Risk Management – Covering 13 firms, these firms provide the financial and banking industry with tools to help them with and array of risk management functions. These include products to calculate counterparty risk, portfolio valuation stress testing, margin and collateral calculations, trend analysis, internal control and analysis of suspicious trades.
Due to scandals such as those around FX Fix and LIBOR rates, many firms have been forced to implement ways to analyze communication to customers and how products are being priced to their customers.
Identity Management & Control – At 22 companies, Identity Management & Control is one of the biggest areas of regtech activity. Their work centers around increasing efficiency to the Know Your Customer (KYC) and Anti-Money Laundering (AML) process.
Due to new regulation, onboarding standards of new clients has become stricter. Therefore, these regtech firms provide automated means to analyze customer documents and conduct back checks to comply with the KYC and AML requirements.
Compliance – The largest and most general, the Compliance group comprises of 23 firms. Among these firms are solutions to handle internal analysis such as big data to review company email correspondence, monitoring of cyber security breaches and document storage.
Also worth mentioning within this group are firms that can diagnose a company’s operations to understand what are their regulatory requirements. At Cappitech, this issue is one we see on a near daily basis with existing and potential clients as companies are unsure of exactly what their reporting requirements are. Therefore, as more financial regulation gets passed, the solutions from these diagnostic firms should become in even greater demand.
Transaction monitoring – Covering 14 regtech companies are transaction monitoring. This group is the offshoot of globalization with payments and trades taking place between companies and exchanges around the world. As such, keeping track of these myriads of movements of money has become harder.
Solutions created by the Transaction Monitoring group include settlement technology using the blockchain, monitoring payments for fraud and post trade tracking of settlements.
Overall, the Deloitte provides a strong foundation of both the present and future of the merging of regulation and technology. Like theories that our physical universe is expanding infinitely, the same is true of the near-term future of the RegTech Universe.