An analysis of the capital invested in RegTech companies according to the area of regulation addressed by their solutions reveals which pieces of legislation appear to be causing the most problems within financial institutions and are thereby deemed to offer the most attractive opportunities for investors.
Just under $11bn was invested in RegTech companies between 2014 and Q1 2019 across 815 transactions, with 32.2% of this invested in companies providing KYC solutions. AML follows with 26.5% of the capital invested, GDPR takes third place with 15.7% (almost a sixth) and MiFID II in fourth place with 5.9% of total investment.
Much anticipation has surrounded GDPR, implemented in May 2018, given the contingent liability of fines for non-compliance, with $1.7bn invested in solution providers since 2014. Illumio, a cloud security company that stops cyber threats, raised a $65m Series E round in February 2019, which was the largest deal last quarter involving a solution provider addressing GDPR.
KYC and AML regulations have dominated the RegTech landscape due to their cross-industry applications and heightened expectations from regulators, which explains why $6.4bn (58.7% of total funding) has been invested in RegTech companies dealing with these two regulations. Basel III, PSD2, Solvency II and AIFMD take 6.1% share of the total investment combined, with ‘other’ legislation accounting for the remaining 13.6%.
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