The global RegTech market is rapidly growing due to the increasing regulations and the need for automated systems to meet these requirements and safeguard critical systems from cyberattacks. This market is expected to grow from $23.43 billion in 2026 to $105.23 billion by 2034, at an average annual growth rate of 20%.
Despite these impressive numbers, RegTech adoption has been slow, especially among financial and healthcare companies, because there are many challenges that impede adoption.
In this article, let’s look at some of these key challenges.
Challenge #1: Legacy Systems
The presence of legacy systems is the biggest barrier because they may not always integrate well with the latest systems, especially AI and SaaS platforms. As a result, there are many compliance gaps that could lead to potential fines. At the same time, discarding these existing systems and moving on to new ones is not easy, as companies have spent billions of dollars on this infrastructure.
The good news is that you’re not alone. Since this is a universal problem, many RegTech vendors offer connectors or APIs that act as a bridge between your legacy systems and the modern ones. Still, the integration is not as seamless as it should be, and it can slow down your response to incidents.
What to Do
The smartest move right now isn’t to wait until you’ve modernized everything. That day may never come. Instead, work out where your biggest compliance gaps are and tackle those first. You don’t need a perfect foundation to get started. Evaluate different vendors and ask them to show you that connection working in a real environment, so you can make an informed decision.
Challenge #2: Uncertainty Over AI Systems
A few years ago, the problem was that people hadn’t heard of RegTech. Now, most compliance professionals know what it is. But, they are worried about the efficiency and accuracy of AI systems used in these tools!
If an AI tool flags a transaction that turns out to be fine, or misses something it should have caught, who’s responsible? The answer, as far as regulators are concerned, is still you. The EU, UK, and US have all been very clear on this – the tool doesn’t carry the accountability. Only your organization is responsible for the outcomes.
This means you can’t just drop a RegTech platform into your team and expect everyone to trust it.
What to Do
For starters, be specific about which areas of processes the AI tools will automate. Also, when you talk to vendors, ask them to explain in simple terms the regulations that the tools help with, what areas it is useful for, why it is a good fit for your organization, and what are some potential problem areas you must prepare for. Such honest evaluations can go a long way in reducing AI-related errors.
Challenge #3: Third-party Risk
When you sign up for a RegTech solution, you’re handing part of your compliance process to an outside company. Though this has been standard practice, the rules around this got a lot stricter in January 2025, when the EU’s Digital Operational Resilience Act (DORA) came into force.
Under DORA, you now have to show that you’ve properly checked out your tech providers, that you have a plan if they go under or get hacked, and that your operations can keep running even if a vendor drops out. That’s not just a box-ticking exercise. It adds time and cost to every RegTech evaluation and procurement process. On top of that, there are serious data risks as well. Many data breaches in the recent past trace back to a third-party vendor.
What to Do
Bring your risk and procurement teams in at the start, not after you’ve already picked a vendor. Ask every potential supplier how they handle DORA, GDPR, and any rules specific to your sector. If they can’t answer clearly, move on. Also, before you sign anything, you need to know exactly how a RegTech platform stores your client data, who can access it, and what happens to it if things go wrong.
Challenge #4: Overcrowding
This is an interesting problem. There are now so many RegTech vendors that picking one has become a long and complicated process. Today, there are hundreds of companies covering KYC, AML, transaction monitoring, sanctions screening, ESG reporting, AI governance, and more. The RegTech industry has both big tech names and smaller specialists. And the best part is that every single one of them will tell you they use AI, that integration is seamless, and that their clients love them. After a few calls, the pitches all blur together, and every tool may seem similar.
What To Do
Start with a list of the exact features you need, the compliance gaps you are looking to fill, and your budget. With this as the basis, you can narrow down tools to find the one that best meets your needs. You can also read reviews from unbiased platforms like PlanetCompliance to better understand their application in the real world.
Challenge #5: Handling Multiple Frameworks
If your firm operates across multiple countries, you’re dealing with rules that don’t always line up. For example, the EU’s AI Act, the UK’s Consumer Duty, SEC climate disclosure requirements in the US, and the MAS guidelines in Singapore can pull in slightly different directions. It’s hard to find tools that can cater to every one of these requirements. Sometimes, you may have to use multiple tools, which increases costs and can make operations messy and inefficient, thereby eliminating the benefits that come with RegTech in the first place.
What To Do
The good news is that many vendors are looking to add more frameworks to their platform to ease struggles for organizations like you while creating additional revenue streams for them. This is still an evolving space, and in the next few years, we can expect customizable platforms, where you can pick the modules or frameworks based on your requirements.
Challenge #6: Money and Resources
Lastly, it takes money and resources to set up the right RegTech platform that meets your needs. Sales cycles tend to be long, and it can take a few months of regular back-and-forth conversations to seal the deal.
Another issue is the budget. Shrinking budgets mean that compliance is one area that is not high on the spending list. Moreover, when compliance vendors add more features and frameworks, they also tend to charge extra. This is just economics.
What To Do
Many vendors understand the business pressure and offer pay-as-you-go models, which means you can increase or decrease usage based on your budget. However, this is easier said than done because it could result in compliance gaps. While there is no straight solution, this is something to keep in mind while evaluating vendors.
Next Steps
Now that we’ve discussed the challenges in RegTech adoption and the potential solutions, what are the next steps?
None of the challenges above is a deal-breaker on its own. Old systems can be worked around, vendor risk can be managed if you start that process early, a crowded market gets easier to navigate when you know exactly what problem you’re solving, and the AI gap closes when you’re honest about what the tool can and can’t do.
The firms getting the most out of RegTech right now aren’t necessarily the biggest or the most tech-forward. They’re the ones who started with a very clear question – “what’s actually going wrong in our compliance process?”, and then went looking for a tool to answer it. That focus is what cuts through the noise. Start there, and the rest tends to follow.