Few areas have seen such growth in terms of investment and adoption like RegTech. As a result of the current crisis, the existing trend towards digitalization of regulatory services and solutions has made another leap, so that earlier forecasts already seem outdated. Market value of the sector and investment in RegTech companies has already been on the rise. Regulatory Technology was forecasted to grow at of more than 50% per year over the next six years, but with more people working from home, digital solutions are the way forward.
Not that the previous situation was highly unfavorable: ever since the financial world stood at the brink of collapse in 2008, financial penalties have built up to epic proportions: in America alone financial institutions have coughed up more than $313 billion in fines and settlements . In the same time frame, penalties on a global scale amount to $36 billion for violations of AML, KYC and sanctions regulations. This meant that the cost of compliance has skyrocketed as around 10-15% of total workforce of financial institutions is dedicated to governance, risk management and compliance according to estimates. Tier one banks are said to be spending well in excess of $1 billion a year on compliance-related costs, or some $270 billion a year for the industry as a whole. Fertile ground for innovation, wouldn’t you agree?
However, while these are substantial arguments in favour of RegTech disruption, it still disregards other aspects that could well be equally important. In any case, neglecting these aspects means to wrong the development since reducing it to financial penalties disregards the full picture that makes RegTech so promising.
One such aspect is that in the discussion about the future of RegTech, we forget that it hasn’t even started to tap into its real potential, i.e. the application in other industries than financial services. Reducing it to financial services means highlighting the focus of the current situation, but leaving out enormous opportunities in other industries. Insurance, Telecoms, Petrol and Gas, Energy, Automation, Fishing, as well as Rail, Ship and Air Traffic. What they have in common is that they all are heavily regulated industries that present an immense market opportunity.
The Healthcare Situation
And then there is, of course, Healthcare: already before the Coronavirus hospitals were overstretched in terms of the pure administration of regulatory compliance: A report by the American Hospital Association (AHA) on “Regulatory Overload: Assessing the Regulatory Burden on Health Systems, Hospitals and Post-acute Care Providers” found that hospitals and other healthcare providers spend nearly $39 billion a year. The authors estimated that “an average-sized community hospital with 161 beds spends nearly $7.6 million annually on administrative activities to support compliance with the reviewed federal regulations”, but that figure rises to $9 million for those hospitals with intensive care. Interestingly, AHA broke the cost down to look at in another way: the regulatory burden costs $1,200 every time a patient is admitted to a hospital.
The bill does not stop there though. If you consider additional resources such as investments in related infrastructure and IT the total cost of compliance with healthcare regulations is about $47,000 per bed or $1,200 per patient for the average-sized hospital, according to the report.
Other aspects add up and the specifics for each hospital differ, but the bottom line is the complying with the rules in such a highly regulated sector as this makes a pretty good business case for Healthcare RegTech.
And then there is the element of time and commitment of staff that could otherwise be dedicated where it is needed, i.e. in the treatment of patients. Whereas there is a good reason for most of these regulations, the pure execution of compliance with the rules – the completing of information, the administration of client data, regulation related training and so on – draws from the existing resources that could be put to better use. Especially if you take into consideration that dealing with regulations should not necessarily be the first thing a doctor or nurse need to focus on.
Thus, it is no wonder that Healthcare is considered such an attractive playing field to apply Healthcare RegTech solutions with the protection of highly sensitive patient data is certainly the most important area. While it has always been a very delicate field the increasing digitalisation of health care increases the pressure on organisations. The use of wearables for patients safety goes hand in hand (no pun intended) with increased obligations in respect of data protection and privacy. The automation of processes is another factor that could produce a substantial increase in efficiency and effectiveness of health services together with sizeable cost savings, which is key to make them affordable for everyone. And then there is of course the need to keep track of regulatory changes, which several RegTech players already cover albeit with a focus on financial services.
As promising as the case for Healthcare RegTech sounds though, there is of course a but and it is no small obstacle. A heavily regulated industry equals a complex industry and most RegTech solutions are tailored to the needs of financial services. The general elements of a successful Compliance officer in this field might well be similar to other industries, i.e experience in public policy, law, loss prevention, and strategic management, coupled with an agile workstyle and innovative mindset. However, the specific knowledge often is not as easily transferable and experience built up in the sector is extremely valuable. It touches on an issue that often frustrates clients of RegTech firms in financial services, namely the lack of understanding of the specifics of the industry on behalf of the software providers, and while many firms have made progress in this area, it is a similar learning curve in a very different sector.
The same holds true for the transferability of solutions itself. While some fields like data protection or regulatory change management need smaller or bigger adjustments, others are entirely incompatible. For providers it is therefore essential to exactly identify the opportunities that eventually exist before a move into Healthcare RegTech.