RegTech, short for Regulatory Technology, refers to using technology, particularly software and algorithms, to help companies comply with regulations efficiently and cost-effectively. RegTech solutions typically involve big data analytics, cloud computing, machine learning, and artificial intelligence to manage regulatory compliance tasks, reduce risks, and streamline reporting. They are used for monitoring, reporting, and ensuring compliance with various financial regulations, including anti-money laundering (AML) laws, the Know Your Customer (KYC) guidelines, and other financial industry regulations.
A bank that receives huge amounts of data may find it too complex, expensive, and time-consuming to comb through. A regtech firm can combine complex information from a bank with data from previous regulatory failures to predict potential risk areas that the bank should focus on.
Jake Frankenfield, fintech journalist at Investopedia
In Simpler Terms
Think of RegTech as an automated system that keeps track of all the complex and ever-changing financial regulations. When a bank wants to onboard a new customer, RegTech tools can swiftly and accurately perform due diligence, like background checks and identity verification, ensuring the bank adheres to KYC and AML regulations.
RegTech not only helps in compliance but can also predict future risks by analyzing trends and patterns. While RegTech streamlines compliance and reduces the risk of human error, it also requires businesses to adapt to new technologies and continuously update their systems to keep up with new regulations.
