With the pandemic accelerating digitalization globally, the evolving wave of cybercrime, data privacy challenges, and shifting compliance needs, financial institutions are increasingly embracing specialized tech to meet regulatory requirements. The ever-changing regulatory landscape for financial institutions has provided an opportunity for innovators to establish new regtech startups to support financial institutions with compliance.
Regtech Startups: The Current Landscape
Regtech is the management of regulatory processes within the financial industry through technology. Today, the financial industry faces more than 220 regulatory changes every single day, which results in approximately $240 billion in paid global fines for non-compliance. Because of that, it is projected that the global technology spend at financial institutions for regulatory compliance will reach $120 billion in 2024.
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Equity funding activities have also been increased as well. In fact, the capital raised by regtech companies has been increasing year-over-year, surpassing $5 billion invested in regtech in 2020. And the trend has continued in 2021 as well―in the first five months, we have already seen almost $4 billion being invested in regtech companies, surpassing the total amount of funding in this space in 2018. While early-stage deals space dropped from 52% in 2018 to 21% this year, mature regtech companies have definitely been among investors' favorites―around 18 Regtech startups have raised over $100 million since the pandemic started.
Regtech: Challenges in Data Privacy
The COVID-19 pandemic revealed that financial institutions do not have the necessary capabilities to onboard customers remotely, such as neobanks, which have been digital-first from the ground up. Financial institutions have increased interest in digital onboarding solutions, exporting alternative options on how to perform customer onboarding and know your customers remotely.
The growth of digital banking and e-commerce has also increased card-not-present transaction volumes, which subsequently resulted in fraud rates doubling. The United States alone saw around $11 billion worth of losses due to credit card fraud last year and it is expected to continue to increase over the next few years.
The digital transformation has also brought up several challenges in data privacy. With more sensitive data being stored about us, data governance and security are becoming even more critical, as cyberattacks and system breaches are getting more sophisticated and harder to detect. Additionally, remote customer servicing and COVID-19 contact tracing are just a few of the new technologies that were rushed into deployment and adoption, raising profound concerns about surveillance, privacy, and data protection.
Because of the changing landscape and increasing threats, organizations will have to put more effort into vetting the third parties they work with, shielding themselves from potential risks through third-party partners. However, we believe these five regtech startups offer unique solutions for financial institutions and can help reshape the future of fintech.
RegTech Startups to Watch Out For
Comply Advantage is an award-winning AML data and technology company that offers AI-driven financial crime risk data and detection technology. The industry's only real-time data provider of Sanctions, PEPs, and Adverse Media with a solution that has been built with REST API principles from the ground up, ComplyAdvantage helps firms follow the risk-based approach as efficiently as possible. ComplyAdvantage aims to neutralize the risk of money laundering, terrorist financing, corruption, and other financial crime.
Paragon Data Labs
Paragon Data Labs is a next-generation regtech startup that develops cloud-based enterprise software solutions to streamline critical operations for financial services firms. Their flagship Compliance Administration and Tracking (CAT) platform is a cloud-based enterprise software to streamline employee compliance for financial services firms. CAT integrates Personal Trading Oversight, Employee Disclosures, and Material Non-Public Information Management for automated monitoring and robust firm-wide analysis and visualizations. CAT makes employee compliance easy for the employer and employee.
Regulativ.ai offers solutions to transform the Cyber Security Regulatory Compliance functions and to make them more efficient by automating the current Cyber Security Self-assessment & certification processes. Regulativ.ai products, which use cloud, AI, machine learning, and natural language processing technologies, are automated to make each participant more efficient. This transforms cybersecurity self-assessments and third-party supplier risk assessments, saving significant time and cost.
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Clausematch provides policy and regulatory change management, and a compliance platform that automates time-consuming tasks, organizes your data, and makes collaboration and knowledge-sharing a breeze. Clausematch applies a deep understanding of the regulatory lifecycle and machine learning (ML) to standardize and automate processes and workflows across teams, reduce costs, speed up implementation, and demonstrate compliance to regulators.
Apiax is a Swiss regtech startup that builds and offers tools that transform complex financial regulations into digital compliance rules, which are constantly up-to-date, verified, and accessible via an API. A pioneer of digital compliance, Apiax allows financial institutions to comply with global regulations more efficiently and is perfectly suited for the open banking and API economy.
Regtech Startups: A Conclusion
Ultimately, the digital transformation has presented several new opportunities to help reshape the finance industry. While there are concerns of cybercrime, digital privacy, and shifting compliance needs, several regtech startups have already created solutions to alleviate these challenges and create a safer digital future for everyone.
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