What Is RegTech?

Emerging technology is helping financial firms be more efficient, reduce regulatory risk, and lower their overall compliance costs.

Section Guide

Introduction RegTech Landscape Solution Provider Categories Regulatory Intelligence and Compliance Management Subcategories The Power of AI in RegTech Use Cases Benefits of RegTech Marketplace Trends Conclusion

Introduction

“Interestingly, when respondents were asked to look ahead to the next year, 27% still felt that regulatory scrutiny would remain the dominant driver of changes to their compliance processes. However, about a third of respondents (35%) identified advanced technologies and AI as the main influences on their near-term compliance efforts.”

– 2024 Nasdaq Global Compliance Survey

RegTech (Regulatory Technology) is the application of emerging technology to improve the way businesses manage regulatory compliance. Born of the regulatory demands following the 2008 global financial crisis, RegTech continues to mature rapidly, now engaging machine learning, natural language processing, blockchain, AI, and other technologies to bring the power of digital transformation to regulatory compliance.

RegTech encompasses a wide range of tools that help organizations keep pace with the rising tide of regulation and remain compliant. Its value is universally recognized. In 2022, the global RegTech market reached a valuation of $9 billion, with a staggering projected growth to $66.9 billion by 2032, showcasing an impressive CAGR of 22.6% over that period.

But what do these solutions do, and more importantly, how can they help Risk and Compliance teams in financial services with the complex job of managing regulatory compliance? Below, we offer a guide to the young and growing RegTech industry – explaining how it came to be, why it matters, and what’s next on the RegTech horizon.

RegTech Landscape

While the underlying details of regulatory compliance are incredibly detailed and complex, the RegTech Landscape is quite simple. It is composed of three elements:

  • Legislators and Regulators: Establish and enforce regulations.
  • Financial Institutions: Operate within the framework set by regulators by either developing regulatory technology (RegTech) in-house or procuring solutions from specialized RegTech companies.
  • RegTech Companies: Serve as innovators, creating new regulatory technology solutions to help financial institutions stay compliant.

RegTech Solution Provider Categories

Source: FinTech Global, RegTech Analyst

Presently, there is no universally accepted set of technology categories for the RegTech industry. However, RegTech solution providers can be organized according to the regulatory issue(s) they address and the component(s) of the RegTech value chain they impact.

Client Onboarding/Background checks 

Companies in this subsector offer tools for onboarding and/or monitoring customers in order for financial services organizations to do business with them. Onboarding processes include initial customer due diligence (such as KYC and AML screening).   After the initial client onboarding process, financial institutions need to continuously monitor activities and circumstances to ensure counterparties and the business conducted with them remain compliant. Solutions in this space enable organisations to perform background checks and screen customer data against global watch lists such as PEPs and adverse media.

Risk Management

These companies offer solutions to help identify and manage compliance and regulatory risks, assess and collate risk exposures and scan for upcoming changes to the risk landscape. Additionally, companies in this category help financial services firms perform risk calculations and analysis to comply with various regulatory obligations, including capital allocation and stress testing legislations such as Basel III and Solvency II.

Reporting

Reporting includes companies that provide tools to store, organize and distribute data to clients, authorities and regulators. These group of solution providers deploy big data analytics and cloud-based solutions that enable financial institutions to comply with regulations such as MiFID II transaction reporting, EU Securities Financing Transaction Reporting (SFTR) and Basel III liquidity reporting.

Financial Crime/Fraud Prevention

These companies offer point solutions and/or comprehensive surveillance solutions to prevent and detect fraud and other suspicious activities such as insider trading, market abuse and employee misconduct.

Transaction Monitoring 

Solutions for real time transaction monitoring and auditing to identify suspicious activity and transactions that breach anti-money laundering rules, counter-terrorism financing or payments regulations.

Communications Monitoring

Solutions to record, monitor, and analyze different forms of communication such as phone, video and email interactions in order to ensure compliance with regulations such as MiFID II, FINRA communications rules and GDPR. Companies in this category also provide tools to archive and securely store communication for audit and regulatory review purposes.

Cybersecurity/Data Security

This subsector includes companies that provide solutions to comply with data protection and privacy legislations such as GDPR. It also covers vendors that help financial institutions prevent cyber-attacks and secure networks and applications from internal and external bad actors.

Regulatory Intelligence and Compliance Management

RegTech companies in this category offer specialized technologies that help organizations monitor, analyze, and comply with evolving regulations and legal requirements. Current solutions leverage process automation, artificial intelligence (AI), and data analytics to identify and track regulatory updates, assess the impact of the changes, and provide actionable insights to ensure compliance. There are a wide variety of solutions designed to help organizations effectively manage the massive amounts of global regulatory information published every day, which are categorized as horizon scanning and regulatory change management tools.  In addition, Governance Risk and Compliance (GRC) platforms enable firms to holistically manage regulatory requirements (obligations) and their downstream policies and controls, assess risks, and maintain governance standards efficiently across the enterprise.

Regulatory Intelligence and Compliance Management Subcategories

“Today’s organizations, particularly in financial services, face a dynamic and increasingly complex regulatory compliance landscape. Managing the cascading effects of change emanating from various directions drives organizations to refine and enhance their Regulatory change management processes. The aim is to make these processes more efficient, effective, resilient, and agile, integrated as part of a broader regulatory change and compliance management strategy.”

– Michael Rasmussen, GRC Analyst & Pundit at GRC 20/20 Research, LLC

To better understand how regulatory intelligence and compliance management solutions align with your existing processes, it’s helpful to classify this subcategory into three major solution types:

Regulatory Monitoring

Horizon scanning tools provide regulatory content, usually in the form of a content library, feed, or resource center. These tools automatically capture and consolidate documents published by regulators into one platform (including the laws, enforcement actions, guidance, rule updates, and more), helping a firm keep its finger on the pulse of the regulatory landscape and make research and analysis processes more efficient.

 

Change Management

Change management tools enable firms to capture and operationalize regulatory obligation (or requirement) updates. It’s important to understand that not all change management solutions are alike. Vendors like AscentAI offer a purpose-built, comprehensive solution that transforms the raw text of regulatory documents into actionable knowledge, while others simply repurpose their horizon scanning technology to identify potentially relevant documents.

 

Compliance Management

Technology that includes GRC platforms and other workflow systems that firms utilize to aggregate, monitor, and maintain their enterprise regulatory information, including regulatory obligations, controls, policies and procedures. Workflow capabilities allow users to track and manage their overall risk and compliance efforts.

 

The Power of AI in RegTech

Source: FinTech Global, RegTech Analyst

It should come as no surprise that Artificial Intelligence (AI) is at the very heart of the RegTech innovation agenda and a core component of many emerging solutions, enabling firms to digitally transform a wide variety of traditionally manual processes within their regulatory risk and compliance operations. The regulatory compliance landscape is perfectly suited for AI’s core capabilities like:

  • Data processing and analysis – AI can quickly collect, organize, and analyze large amounts of data.
  • Pattern Recognition – AI can identify trends, anomalies, and insights that might not be obvious to humans.
  • Automation – AI can quickly automate repetitive tasks, improving efficiency and reducing human error. 
  • Decision Support – AI can provide recommendations, predictions, or risk assessments to assist in decision-making.

But, it’s critically important to understand that AI – by itself – is not a magic bullet. It’s the proper application of AI technologies to specific use cases and/or compliance processes that unlocks productivity increases, helps to identify and mitigate risk, reduces operating costs, and accelerates enterprise speed.  

Machine learning

Machine learning refers to the way AI systems can learn new behaviors and patterns without being supervised by a human being. Machine learning means you feed an AI with data on things like previous credit decisions, fraud alerts, cybersecurity risks and other decisions. By doing that, you train the AI to better understand the decisions, why they were made and how to better emulate a human compliance officer. Typically, the more data the AI is fed, the better it will perform.

A related term here is big data, which refers to the massive data sets that AIs can be trained on. Knowledge is power in a very real way when it comes to AI and machine learning.

Deep learning is a type of machine learning that utilizes a hierarchical level of artificial neural networks to learn. What this means is that instead of its analysis happening in a linear way like traditional programs, deep learning AIs more resemble a network–similar to how a brain is structured. Essentially, it means that they can perform more complex decisions and make connections that might not be possible in linear models.

Natural language processing

Natural language processing is an example of how an AI can be trained. It refers to the process of training an AI to understand human languages in speech and writing. For instance, it is used within communication monitoring services to transcribe meetings and to alert the user if there are any compliance issues that arise within those conversations, such as the sharing of confidential information. It can also be used to scan documents and forms.

Generative AI

Generative AI is a type of artificial intelligence that creates new content, such as text, images, code, audio, or video, based on patterns it has learned from existing data. Popular AI tools like Open AI’s ChatGPT, Microsoft CoPilot and Google Gemini are examples of this technology. Instead of just analyzing and recognizing information, generative AI produces something new, making it useful for tasks like summarizing large regulatory documents to quickly understand essential information and problem solving/decision support.

Large Language Models (LLMs) 

LLMs have quickly become one of the most well-known AI tools, thanks to the success of services like Chat GPT and Gemini. LLMs are essentially machine learning/deep learning tools that are trained on massive amounts of text.  Words and phrases are the data on which the models are trained–and the resulting technology allows users to engage with an AI in a conversational manner. RegTech providers can use LLMs to assess large datasets and compile detailed insights, automate the creation of regulatory reports, policy analysis, behavioural analysis and more.

Use Cases

Here are a few use cases that can help you identify which categories of RegTech solutions might be best, based on where you are in your digital transformation journey.

Problem: “I want to save time on horizon scanning and research.”

Whether you have a full staff of compliance analysts or a compliance team of one, they probably spend countless hours monitoring for new rules and regulatory changes. Traditionally, personnel have captured this information manually from multiple disparate sources.

Solution: Consider a regulatory content provider.

With the majority of regulatory documents centralized in one platform, your team can more easily research and review updates and regulatory documents such as press releases, guidance notes, and enforcement actions – without needing to sift through individual regulator websites or RSS feeds.

Problem: “I want to know my firm’s regulatory obligations, as well as the impact of regulatory changes.”

Compliance workers analyze dense regulatory text and synthesize that information into applicable obligations. Once the obligations are compiled, personnel must constantly track rule changes and additions and then determine how those changes impact the firm’s operations. This process is not only painstaking; it is also prone to human error; errors that can compound with repeated regulatory change.

Solution: Consider a regulatory knowledge provider that identifies your obligations and rule changes.

If you are looking for a way to help your team surface the actions your firm must take (or refrain from taking) in order to be compliant, then consider an AI-driven RegTech provider that generates targeted obligations and automatically keeps them up-to-date as rules change. This will help you know exactly what you need to do to comply while maximizing efficiency and effectiveness.

Problem: “I want to manage my daily compliance activities, including creating and maintaining controls, policies, and procedures.”

After identifying a firm’s obligations, teams write their policies and procedures around those requirements. During this process, it becomes clear as to which departments need to be involved to maintain compliance. Personnel may rely on Excel spreadsheets or legacy internal systems to create a digital system of record in the event of an audit or examination.

Solution: Consider a GRC platform or other workflow system that allows you to house and project-manage your compliance activities.

GRC platforms can help automate menial workflow tasks, tie together disparate data, and house controls, policies, and procedures. Team members can assign tasks, track progress, maintain important documents, and ensure completeness of the firm’s obligations.

To satisfy all of these use cases, your compliance operation probably requires multiple solutions to create a full-scale compliance technology stack. 

A common misconception is that “end-to-end compliance” can be accomplished with one vendor. While an attractive vision, it is unattainable (at least in the foreseeable future). While this may seem disheartening, the myriad solutions available allow firms to build a fully bespoke, integrated technology stack instead of relying on a ‘one-size-fits-all’ approach.

Benefits of RegTech

For financial services firms, RegTech can deliver substantial benefits:

Efficiency gains — As regulation continues to grow, it becomes nearly impossible for compliance personnel to keep up. Technology capable of processing high volumes of data at incredible speeds can quickly parse and analyze raw legal text and extract valuable insights. 

Greater accuracy and comprehensiveness — Manual, siloed processes tend to create gaps in the compliance operation, leading to human error and increased exposure. Implementing the right technology (and thoughtfully integrating those technologies with appropriate systems) closes gaps and creates a streamlined compliance process.

Improved risk management — Many RegTech tools help protect against various types of risk, including market abuse, cyber-attacks, and fraud, by monitoring systems and alerting personnel to suspicious activity. 

Greater internal alignment — Technology tools enable greater transparency throughout the business, connecting once siloed people and processes. The result is better insights between business units that can be shared faster, enabling a stronger culture of compliance.

Conclusion

The aggressive digital transformation agendas of financial services firms combined with the rapid pace of technological innovation by RegTech solution providers is reshaping the future of regulatory compliance at an incredible pace. As the regulatory landscape continues to grow larger and more complex, RegTech creates new opportunities for risk and compliance professionals to move beyond traditional and siloed processes and take a more productive, efficient, and cost-effective approach to their operations. By leveraging advanced technology, firms can gain real-time visibility into regulatory changes, respond with speed and confidence, and ensure compliance at scale. Harnessing AI-driven automation empowers financial institutions to power high-performing operations, mitigate risk proactively, and stay ahead in an ever-evolving regulatory environment.

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Sources

AscentAI would like to thank our partners, FinTech Global / RegTech Analyst and Michael Rasmussen of  GRC 20/20 Research for contributing their insights and expertise to this page.