Today, we are proud to publish our latest market report, ‘Regulatory Technology on the Rise’. In the report, we zoom in on the impact of regulatory compliance and the increasingly important role that regulatory technology is playing. Since the 2008 credit crisis, the financial sector has been inundated with new laws and regulations designed to enhance the gatekeeping role of financial institutions. Worldwide, it is estimated that there are some 750 institutions regulating activities within the financial services industry. This has a huge, but often unseen, impact on the industry. Regulatory compliance is becoming less and less of a precondition and is increasingly becoming a core competence for financial institutions. Regulatory technology plays a crucial role in this. Hyarchis looks at the five most important trends in this rapidly evolving field.
Everyone fills out an anti-money laundering form from time to time, but the impact of this on the financial sector generally remains unclear. The Dutch Banking Association (NVB) estimates that more than 8,000 bank employees in the Netherlands work to combat financial crime. This means that around 20% of all bank staff in the Netherlands spends its time trying to get to grips with a slew of acronyms such as AML, KYC, CDD, Wwft, MiFID II and AIFMD. By comparison, this is twice the number of district police officers in the Netherlands.
The laws with which financial service providers seek to be compliant focus primarily on risk management. This involves the prevention of money laundering and terrorist financing, while also contributing to identity control, legal reporting, transaction monitoring, and compliance. In addition to a substantial investment in human capacity, Dutch banks spend more than a billion euros annually on combating financial crime. It is therefore understandable that financial service providers are looking for ways to reduce the operational pressure of regulatory compliance. Regulatory technology, or Regtech, plays a central role in this.
Regtech is an umbrella term for a very diverse set of technologies that help financial service providers comply with relevant laws and regulations. Based on their activities, these Regtechs can be divided into five main categories. These are: transaction management & transaction monitoring, compliance & customer due diligence, fraud prevention, identity management, and regulatory reporting. The Regtech market has experienced impressive growth over the last five years. Whereas Regtech constituted only a modest 1 percent of the fintech landscape in 2015, that figure has grown to 8 percent in 2021. This places it among the top five focus areas within the fintech ecosystem in the Netherlands. Globally, the size of the Regtech market is estimated to be around $6 billion and is expected to grow to $33 billion by 2025, thanks to the pressure of new laws and regulations. In short, the role of regulatory technology will only increase in scope in the coming years.
In our new market report, we zoom in on the five most important trends underpinning the interplay between regulatory compliance and regulatory technology, and demonstrate how regulatory compliance can develop from an afterthought into a competitive advantage.