Regtech – leading the fight against crime

We look at the rise and rise of RegTech companies, all using AI and machine learning to help companies combat financial crime

For Financial Technology companies, business is booming. By definition, FinTechs are small and agile, able to shift rapidly and develop new technologies at pace in order to capitalise on new markets.

They are also a perfect target for financial crime. As fast as they can develop, so too can unscrupulous criminals looking to take advantage of gaps – gaping holes, in some cases – in new systems whose ambition more than often outstrips their regulatory compliance.

Enter RegTechs. These are regulatory technology companies that focus on software solutions to help financial institutions automate and streamline their regulatory activity. And it’s lucrative – the market for RegTechs is estimated to reach $118.7 billion by 2020.

Risky Business

The rapid rise of FinTechs has, in some cases, left cracks that can be exploited by financial crime. Their focus tends towards an excellent customer experience – it’s what sets them apart from the big, traditional banks. Moving quickly to stay ahead of wealthier competitors means there’s pressure to develop new solutions quickly – and the high degree of automation can also leave room for error.

Their strengths in terms of agility may also prove their weakness when it comes to compliance. Unlike the big banks, startups often have small teams who are fighting to keep up with ever expanding regulation. As well as this, they lack the ‘organisational memory’ of big institutions and can struggle to attract and pay experienced heads.

High-profile cases like those of Trustbuddy and Ripple Labs highlight just how far south things can go for founders, investors and customers.

Gap in the market

This is where RegTech comes in. This new breed of technology’s main uses include stress-testing financial forecasting, automating and monitoring regulatory changes, and email and filtering and monitoring. Not always the most glamorous topics, but absolutely vital to the smooth running of financial businesses.

Artificial Intelligence and Machine Learning are at the heart of RegTech software, and are used to analyse and make sense of data at its biggest. The idea is that they are easy to integrate, more reliable, secure and cost-effective, and quick to adapt to regulatory changes and criminal activity. They make it easier for companies to stay compliant.

Regtech companies to keep your eye on

There are new RegTech companies popping up all the time – here are some of the top players. To be fair to the start-ups, it’s not just smaller FinTech companies that are benefitting.

Ayasdi, which uses machine intelligence to solve a variety of regulatory and compliance-related problems including Anti Money Laundering and financial risk modelling, count Citi and Credit Suisse among its clients.

Similarly, in the US, Standard Chartered has appointed Silent Eight to screen customers, using natural language processing matching against watchlists, and learning to carry out assessments as a human would respond.

How to stay one step ahead

Like all new technologies, although they claim to be easy to integrate, in reality it can be more difficult. Proprietary systems will all be different and so custom integrations are often needed – mistakes can be very costly.

Hiring employees who have been through the process before can be beneficial and help solve any problems before they’ve even started.

Although still in its infancy, RegTech is here to stay. Once integrated, the benefits are many. Including helping your compliance teams sleep at night.