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5 Major RegTech Trends & How Companies Can Leverage Them for Benefits

17 May, 2024

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Maximizing the business’s Return On Investment (ROI) while mitigating the risk of fraud and financial crimes has become one of the most prominent challenges for companies. In addition, it is inevitable for companies to adhere to compliance regulations. Regulatory Technology, however, helps companies stay compliant with the constantly evolving financial regulatory environment. 

As per Fortune Business Insights, the global RegTech market is expected to increase from $15.80 B in 2024 to $85.92 B by the end of 2032 at a Compound Annual Growth Rate (CAGR) of 23.6% through the predicted period. This highlights the importance of emerging regulatory technology in today’s financial ecosystem, where businesses can benefit and ensure growth and compliance. Read this article to discover the primary RegTech trends in 2024 and their integral role in mitigating challenges.

What is Regulatory Technology?

Regulatory Technology (RegTech) refers to the implementation of diverse and innovative technological solutions to help businesses stay compliant with regulations. It helps industry stakeholders ensure regulatory compliance, reporting, and risk management. Companies can now effectively utilize regulatory technology and empower themselves in the race of digital transformation.

Significance of RegTech in the Present Era:

Financial regulations are the primary requirements for businesses to ensure transparency and financial stability. As the world of technology continues to grow, imposters keep coming up with new ways to conduct illicit financial crimes. Hence, it has become challenging for companies globally to meet the challenges of illicit financial activities. This necessitates the emergence of innovative technological solutions while making a secure ecosystem for businesses to grow.

Over the last decades, compliance and regulatory authorities have been more proactive towards new legislation regarding business due diligence. Regulatory bodies in the US and EU issue RegTech regulations, while some of the significant legislations are:

  • 4th EU AML Directive:

4th EU Anti-Money Laundering Directive was released in 2017. As per the guidelines issued by the Financial Action Task Force (FATF), the Directive was expanded to cover various sectors. Further significant changes included a better risk-based system for monitoring, with businesses demanding to integrate many aspects into their business risk profiles. It also presented the notion of beneficial ownership, where companies are required to record the ultimate owners of legal entities centrally. In short, this regulation requires organizations to ensure complete transparency of company structures to prevent money launderers from using entities to hide funds.

Consequently, Regulatory Technology holds primary importance in today’s world of strict regulations in order to ensure compliance with regulations while mitigating the risk of financial crimes and other illicit corporate activities.

  • AML & CFT Regulations:

The Financial Crimes Enforcement Network (FinCEN) is a US regulatory body that issues regulations to ensure Anti-Money Laundering and Counter-Terrorism Financing (CTF). It necessitates businesses and financial institutions (FIs) to abide by the legislation to prevent systems from engaging in illicit financial activities. The 5th Anti-Money Laundering Directive (5AMLD) in the EU expanded on the concept of Politically Exposed Persons (PEPs). It mandates that member states create lists of positions with significant authority that are deemed more vulnerable to bribery or corruption. Consequently, these roles are subject to enhanced due diligence and monitoring.

Similarly, Canada’s Financial Transactions and Reports Analysis Centre (FINTRAC) enforces AML/CFT regulations. Canada encourages a risk-based approach similar to the European Union. These global regulations now require businesses globally to integrate RegTech, which now helps organizations stay compliant while mitigating the risk of potential fraud.

Significant RegTech Trends in 2024

RegTech Trends in 2024:

  • Proactive Risk Management:

Manual compliance and business verifications are no longer efficient due to the risk of errors resulting from human intervention. Furthermore, the approach is considered to be outdated as companies can’t see the future prospects and challenges. Nevertheless, a more accurate compliance and risk management approach allows organisations to predict future risks and avoid potential financial as well as reputational losses.

RegTech solutions help companies manage partnerships effortlessly while mitigating the risk of fraud. Furthermore, RegTech compliance solutions streamline the process of optimization of company operations and foresee the future partnership scope of companies with the help of advanced automated solutions.

  • Streamlined Business Approaches:

Regulatory technology was initially treated on conventional terms, but most businesses kept it separate from core organizational functions. However, current business verification solutions are more drawn towards these advanced solutions. For instance, when company onboarding, businesses can conveniently gather required documents and verify their existence as well as legitimacy. This significantly helps organizations in ensuring that they are collaborating with genuine businesses rather than shallow companies that merely exist on paper.

  • Enhanced Regulatory Compliance among SMEs:

Meeting the compliance regulations is no less than a challenge when it comes to small and medium-level enterprises. Running extensive corporate verification processes and meeting requirements for business due diligence with limited resources can often take a toll on companies’ financial health. However, RegTech solutions have a prominent role in helping businesses automate their company screening processes and ensure regulatory compliance to save themselves from hefty fines as well as reputational damage.

  • Integration of AI and ML Solutions:

The advancement of Artificial Intelligence (AI) now plays a crucial role in helping businesses across various sectors ensure regulatory compliance. The RegTech revolution significantly streamlines the business verification processes for compliance teams. 

The financial counsellor and director of the Monetary and Capital Markets Department of IMF, Tobias Adrian, said, “Advances in AI over the past few years are reshaping risk and compliance management by leveraging broad sets of data, often in real-time, and automating compliance decisions. This has improved compliance quality and reduced costs.” He further talked about how significant AI and RegTech compliance solutions are when it comes to verifying businesses, AML/CFT, fraud detection, and risk management.

  • Implementing Cloud-based Solutions:

RegTech regulations are the same for every business regardless of the size of the company. Cloud-based RegTech solutions are affordable for companies of all sizes. Traditionally, verification procedures require expensive software licenses. On the contrary, cloud computing allows Regulatory Technology to offer a pay-as-you-go model, making authentication open to startups and growing businesses.

Primary Benefits of RegTech in Know Your Business:

  • Enhanced Data Protection: RegTech solutions allow businesses to protect their sensitive data and maintain information integrity with advanced security measures.
  • Compliance Efficiency: Ensuring compliance with business and financial regulations is necessary for companies to preserve their industrial reputation. RegTech, in this regard, automates compliance tasks while minimizing the risk of errors.
  • Better Risk Management: Advanced analytics of RegTech solutions help businesses with the identification of red flags with potential risks, for instance, organizations with complex ownership structures or suspicious transaction activities.
  • Regulatory Compliance: When it comes to Know Your Business, RegTech solutions stay updated with the changing regulations and latest industrial trends, helping organizations avoid challenges due to non-compliance.

How The KYB Can Help:

The foremost objective behind RegTech solutions is to assist businesses with managing their compliance requirements efficiently. The KYB, as the world’s largest data source and business verification service provider, allows companies to authenticate the identity and lawfulness of businesses seamlessly while adhering to Know Your Business regulations. With its extensive data sources across 250+ countries and states, we verify information on 301M companies in real-time to ensure accurate and enhanced business due diligence.

Ensure regulatory compliance with real-time business verification processes, risk assessment, and corporate due diligence, and get centralized reports to smoothly track and monitor your compliance efforts with The KYB.

Get in touch with our KYB team for further information.

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