Worldwide: Regtech On The Rise

Technology is increasingly being integrated into supervision and compliance as regulators and firms respond to digital disruption.

For some time, technology has driven certain core aspects of the financial services industry, such as trading and online banking, but its adoption in regulatory compliance has been more muted. This is rapidly changing, however. Interestingly, regulators are playing a key role in accelerating that shift: As regulators become more proactive in adopting technology in their supervision of the industry, firms are having to evolve their compliance functions accordingly.

For Regulators, Competition and Moore 's Law

Until recently, regulatory agencies have generally not been seen as technology innovators. But in many ways, they are now responding as firms have been to the fast-moving and dynamic forces unleashed by digital disruption. Consider the progression of EU Anti-Money Laundering Directives. While nearly 12 years elapsed between the adoptions of the third and fourth directives, the fifth directive followed just a year later and the sixth directive is already on the drawing board. The need to account for technologies such as virtual currency platforms and e-money is a contributor to this acceleration. Regulation is thus following its own version of Moore's Law.

The adoption of technology by regulators is also driven by the fact that regulators operate within a market and are subject to its forces. Just as investors increasingly factor in the quality of a financial institution's compliance when deciding where to invest, investors, financial institutions, and corporations all consider the strength of a jurisdiction's regulation when deciding where to do business. In the EU, for example, jurisdictions have been effectively competing with one another as UK-based institutions consider locations for their post-Brexit EU headquarters. Regulators thus have an incentive to be seen as technologically progressive.

The use of technology also sends a clear message regarding regulatory priorities. In Hong Kong, the emphasis on creating a more supervised environment for corporations has bled over into Hong Kong's handling of the financial arena; the Securities and Futures Commission has not only greatly expanded the Business Risk Management Questionnaire but has also signaled that it will be using algorithms to analyze the responses and identify inconsistencies and other red flags.

For Firms, Strategy, Budgeting, and Support

Against a backdrop of technology-powered supervision, firms are looking to integrate technology into their compliance, identity management, reporting, and other functions. However, firms will undercut their adoption of regulatory technology if they view technology as a "black box" solution that can simply be inserted into existing regulatory processes. This siloed approach often leads to underperformance–if not outright disenchantment. Better results are more likely when firms begin by examining their overall regulatory workflow. Mapping the dependencies of various tasks, inputs and outputs, and the relationships between processes and controls and requirements will help firms locate bottlenecks and inefficiencies. Some of those bottlenecks and inefficiencies will be best resolved by technology, while others may require data remediation, new procedures, or new staff competencies. The importance of creating a holistic strategy can be seen in our survey results; creating a data strategy linking technology workflow, and compliance is the most frequently named substantial challenge to regtech adoption. And because developing a strategy first will help more clearly define the requirements the technology must meet, doing so may well address the second-most frequently mentioned challenge: finding technology that delivers as expected.

Investors, financial institutions, and corporations all consider the strength of a jurisdiction's regulation when deciding where to do business.

Of course, technology initiatives do not need to lead to full-blown digital transformations. Most firms–and particularly smaller and mid-sized firms– will have to segment their adoption of regulatory technology over time. Two approaches can provide a useful framework for doing so. Technology solutions for regulatory elements that are common across jurisdictions lend themselves to pilot programs in one jurisdiction that can then potentially be scaled across the organization. Once that scaling has taken place, the firm can address the next component on the list. Technology upgrades to KYC requirements, for example, can be followed by AML requirements and then archiving and monitoring. Alternatively, firms can prioritize based on risk, attacking the most problematic areas first. Doing so, however, may require more experience in and resources for technological implementation, depending on where those risks lie.

Three Common Missteps

However firms develop their regtech strategy, they need to ensure that there are sufficient resources and support within the organization for implementation. In our work with clients, we have noticed three areas that can be particularly challenging. The first is budgeting. There is a tendency to establish the budget for new technology first and then assume that the solution can be made to fit that budget, rather than identifying a range of solutions based on specific needs, researching total cost of ownership for each, and then making an informed decision about the most appropriate level of investment. When the budget is determined first, it almost always turns out to be unrealistic, starting the process on a rocky path and forcing a series of no-win tradeoffs as the implementation unfolds.

Second, implementing digital solutions shines a bright light on data integrity; regtech is only as good as the data fed into it. Many firms lack customer and transaction data that is clean, current, and consistent across customers, products, and jurisdictions; data quality was mentioned as a major challenge by one-third of survey respondents.

The third challenge we see involves culture, training, and support. Especially if the introduction of new technology is part of a larger rethinking of processes and workflow, it is critical to create buy-in along the way not only from firm management but also from those whose day-to-day work will be affected by the change. Once the implementation is underway, it may be months before everyone is comfortable with the transition. Remember that, in the beginning, the new processes may well seem cumbersome to those skilled in the old methods. It is thus critical to provide ongoing support to reinforce the cultural shift.

At the end of the day, of course, technology is only a tool, even when it is deployed in the most strategic manner. That tool needs to be wielded by those skilled in its use and in the support of a larger, robust compliance program.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions