Fri. Dec 4th, 2020

Planet Compliance

Innovation & Regulation in Finance

The main RegTech Categories

6 min read

An overview of the different RegTech Categories and their definitions.

Every year when we go through the exercise of updating our RegTech Directory, we discuss the same question: What should be the categories for the different RegTech solutions be?

Should we keep our tried and tested overarching categories that are wider, include more companies and make it easier to fathom the different provides and their solutions? Or do we need to drill down deeper, create more categories to bring more detail to categories? You could easily find dozens of categories, but then the issue would be that even the companies might not be sure, which exactly would be the right one. Thus, we stick comparability and readability over too much detail as it would not do justice to many offerings.

 

So, once again the categories are:

  1. Client and Counterparty Identification
  2. Monitoring
  3. Reporting
  4. Data Protection
  5. Data Warehousing and Analytics
  6. Legal & Regulatory Analysis
  7. Training
  8. General Compliance

 

Let’s explain a little what is covered by the respective categories:

 

Client and Counterparty Identification

Client and Counterparty Identification focuses on the gathering and processing of the necessary information of a financial firm’s clients and counterparties for Know-Your-Customer (KYC), Anti-Money Laundering (AML), Due Diligence purposes and other forms of background checks and verifications. For example, the process of client on-boarding for banks is traditionally burdensome and time consuming. It can take from several days to (more often) weeks before checks are completed and a client can be approved for business. Thanks to the application of innovative technologies like biometrics or blockchain, RegTech firms achieve significant time and cost savings.

 

Monitoring

Monitoring covers checks to determine whether transactions breach Anti-Money Laundering (AML), Market Abuse or Payments regulations as well as for the purpose of Fraud prevention and detection. Rules with regard to AML and Combatting the Financing of Terrorism (CFT) require firms to employ software to prevent and report such activities like Currency Transaction Reporting systems that monitor large cash transaction. Other systems are used for the surveillance of other suspicious activities, for example, in relation to insider dealing or market manipulation. RegTech aims to automate these processes and provide better analytics, for example, using artificial intelligence and machine learning to do so.

 

Reporting

Reporting includes solutions that focus on traditional transaction and regulatory reporting obligations. Trade and Transaction Reporting rules compel financial firms to submit data to exchanges and regulatory authorities. Regulatory Reporting is necessary to monitor the safety and soundness of the financial system and the compliance of its participants with its rules. Following the financial crisis, lawmakers and financial watchdogs have issued numerous new rules and thus raised the bar for firms to comply with their obligations. For instance, MiFID II, increased significantly the already challenging obligations of financial institutions in respect of what they have to report already. Needless to say, that MiFID II is not the only regulatory initiative added to the mix because of the regulator’s appetite for transparency; many in the industry believe that without innovative solutions firms may not be able to comply with their responsibilities in terms of reporting.

 

Data Protection

Data Protection refers to the solutions from RegTech firms that focus on protecting the privacy of individuals in data use especially in light of regulations like the GDPR, which require financial institutions to adapt to a different framework. It also covers other aspects that could be summed up under a wider definition of cyber security.

 

Data Warehousing and Analytics

Data Warehousing and Analytics regards the access, management and analytics of data. The simple storage of the massive amounts of data that financial firms create, receive and have to collect is a challenge by itself, be it through onsite database centres or cloud computing. While there is with many offerings in the field an overlap with other categories, in particular with the reporting and monitoring of data, in this category the focus is on storing and making data accessible.

 

Legal and Regulatory Analysis

Legal and Regulatory Analysis deals with the identification and interpretation of laws and regulations applicable in the financial services industry. Solutions could also identify gaps in existing systems and controls, assessing and highlighting risks for an institution. It includes Laws, regulations or guidelines oblige firms to maintain internal controls and governance systems as well as established policies and procedures that define and describe these. An example would be a Personal Account (PA) dealing policy in combination with the recent Market Abuse Regulation (MAR) of the European Union: financial firms are required to establish a PA dealing policy and with the introduction of MAR significant aspects have changed. A RegTech solution, for instance, not only analyses the new regulation and alerts the user to required changes to a policy but also advise on impact in respect of staff training.

 

Training

Training consists of products and services that aim at the education of staff on subjects like laws and regulations, governance, internal policies, which apply to their day-to-day responsibilities. Regulators expect financial firms to train their employees on a wide range of topics including AML, Financial Crime, Compliance-related aspects like Conflicts of Interest, Market Abuse regulations, Anti-Bribery and Corruption, or IT and Cybersecurity. Of course, this list is not comprehensive and depends on the nature of the business of a financial institution. Gamification of learning, i.e. the attempt to package the content of training into the form of a game, is one of the latest trends to motivate participants to study by using video game design and game elements in learning environments.

 

General Compliance

The category General Compliance refers to all solutions that don’t fit in one of the other, more traditional RegTech categories or deal with new trends and aspects that don’t fit into those. Regulatory risk modelling, scenario analysis and forecasting could be such activities or all actions to evaluate and oversee a firm’s internal culture and behaviour. Others could be related to workflow management. Oftentimes solutions do not fit into one bracket only, but could be put into several baskets and most firms focus on several aspects disrupting the industry through RegTech innovation.

 

 


The classification of RegTech solutions is the basis for the PlanetCompliance RegTech Directory, the most consulted RegTech resource on the Internet. The new edition will be published soon and if you haven’t already done so, you can sign up for FREE here.

Also, we’d love to know: Do you agree with our classification or have questions about? We’re always keen to get feedback and discuss all things RegTech, so drop us a line at info (at) planetcompliance.com


 

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