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The RegTech and FinTech Revolution

International Compliance Association

Big Compliance Conversation , Distruptive technology , FinTech , RegTech

Many well-established financial institutions with a significant market share (often referred to in this context as ‘incumbents’) have become hampered by complex governance requirements around risk and regulatory obligations in recent years.

 

The ever-growing regulatory demands being placed on firms – GDPR being an example of a huge change that is almost upon us – means that the technological and automated solutions on offer to meet these requirements are becoming more of a necessity. Solutions that are able to combine the complex information held by a firm with data from, say, previous regulatory failures, can help predict potential risk areas for the firm to focus on in the future. This is RegTech in action and has the potential to save a firm time and money, and also reduce risk.

Unsurprisingly, RegTech is now one of the most talked about innovations in the financial services sector. An article recently listed the 100 most innovative RegTech companies illustrating the size to which this sector has grown.

Most of the top 100 RegTech solutions listed are closely linked to the more dominant financial markets. For example, almost half are located in either the UK or the US, but the issue is a global one and the solutions available have, in the main, global reach.

However, it’s the added influx of FinTech that has caused the incumbent population of the financial services industry to sit up and take notice. Disruption is a clear and present threat to this community and the threat centres on innovation born out of the FinTech arena.

Results of a survey involving 1,308 financial services and FinTech executives demonstrate the growing impact of FinTech in the financial services industry.

 

What are the main influences of FinTech on financial services?

  • 88% of incumbents are increasingly concerned they are losing revenue to innovators
  • 77% of financial institutions are embracing the disruptive nature of FinTech by increasing internal efforts to innovate
  • 82% of financial institutions expect to increase FinTech partnerships in the next 3-5 years
  • 41% compound annual growth rate in the funding of FinTech startups over the last 4 years

 

Who will be the most disruptive entities over the next 5 years?

  • 75% startups – seen as the main disruptors, but many have shifted to B2B models and are providing platforms for financial institutions
  • 55% social media/Internet platforms – able to leverage their large client reach to provide new channels for customer service and business models
  • 50% ICT and large tech companies – able to innovate at a far faster pace than incumbents
  • 43% E-retailers – able to use their large data sets to provide consumer-focused products and services
  • 41% financial infrastructure companies – may be seen as enablers to innovation with more financial institutions turning to FinTech infrastructure providers
  • 28% traditional financial institutions – not seen as a disruptive force but are best able to leverage FinTech innovation

 

How are incumbents currently utilising FinTech?

  • 84% payments
  • 68% fund transfers
  • 60% personal finance
  • 56% personal loans
  • 49% traditional deposits/savings accounts
  • 38% insurance
  • 38% wealth management

 

Customer retention is clearly an essential area for incumbents to address, particularly around payments, banking, insurance and wealth management. What are the most important areas to focus on to address these challenges?

  • Ease of use, intuitive product design
  • Faster service
  • 24/7 accessibility
  • Superior customer service
  • Cost

 

What are the main regulatory barriers to innovation in FinTech perceived to be?

  • 54% data storage, privacy and protection
  • 50% digital identity authentication
  • 48% AML/KYC
  • 40% new business models (crowdfunding, peer-to-peer lending, etc)
  • 30% e-money/cryptocurrency

 

It’s highly likely that the financial services industry will look very different in five years’ time. The influence of FinTech will continue unabated and this will not only provide startups with a significant foothold in the industry; it will also drive incumbents to embrace innovation fully, to embed it in everything they do, and to make it a crucial part of their growth strategy going forward.

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Eager to find out more? Join the ICA Webinar Series on 09 April, 13:00 - 14:00 BST and watch The Impact of RegTech and FinTech on the Regulated Sector

Today's operating environment is characterised not only by change but also by the division and instability that both drives and results from such change. For those in the financial sector, the rapid emergence of FinTech and RegTech is attracting increasing attention. 

Does this new technology present an opportunity or a threat?

Join guest speaker Andy Clarke, AML/Financial Crime Prevention Course Director at our largest training provider International Compliance Training, as he discusses:

  • the impact of RegTech and FinTech on the regulated sector
  • what the future of RegTech and FinTech looks like for the regulated sector 
  • how this will affect compliance practitioners

 Register today


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