Two years on: how the pandemic has changed the RegTech sector

When Covid-19 swept the world at the start of 2020, no one had any idea how much it would change the way we live and work. As in-person restrictions continue to fester two years on, how has the opportunities provided by the pandemic impacted the RegTech industry?

One of the most clearly notable effects of the pandemic has been the global shift to working from home. Governments globally put their countries into lockdowns, with a strong majority of industries having to move online to conduct their business. According to Marc Gilman – VP of compliance and legal counsel for Theta Lake – remote working is proving to be a key area for RegTech to prove its mettle.

He said, “The impact of remote work coupled with increasing regulatory, privacy, and cybersecurity risks related to the use of collaboration and chat tools like Zoom, Slack, Microsoft Teams, and Webex by Cisco have changed the way that RegTechs and their customers conduct business.

“Given that return to office programs have been stalled by the omicron variant, financial services firms continue to rely on remote work strategies to support business operations. As a result, the risks related to the use of collaboration and chat platforms remain a key risk for firms and a focus for regulators. RegTechs are helping to mitigate these risks, for example, by offering AI-enabled platforms to facilitate the identification of regulatory risks across what is spoken, shown, and shared on these apps is crucial. RegTechs must understand the nuances of the remote work environment and emerging compliance mandates from FINRA, the FCA, and SEC to appropriately address related risks and meet client demands.”

Gilman continued, “The same is very much true for the cybersecurity and privacy risks related to remote work, which have been magnified by data leakage events and increased ransomware attacks. Transparency into data being shared and shown on collaboration tools to mitigate these issues is critical for any firm information security and privacy program.

“In order to be responsive to these emerging risks, RegTechs must provide transparency into how sensitive data like account or Social Security numbers are being displayed on webcams, screen shares, and whiteboards, as well as discussions about trade secrets or the sharing of sensitive applications and URLs.”

Gilman concluded by mentioning that ‘responsive RegTechs’ have internalised the changes caused by the pandemic and should already be anticipating future disruptive events.

The working from home trend shift was also emphasised by Zeidler Group CEO Arne Zeidler as a key change during the last two years. He said, “When you are not in the same room with everyone involved, it makes it significantly more difficult to improvise. The potential for quick and uncomplicated problem solving is reduced if you cannot ask for help from a colleague who has dealt with a specific task before.

“The new situation under the pandemic is a stress test scenario for processes and workflows within a company. Many companies realise that their processes are not as watertight and automated as they thought they were. This realisation creates a significant push to automate and digitalise as many regulatory processes and workflows as possible. In other words, it leads to an increased demand for RegTech solutions. Once regulatory tasks are automated or digitalised, they form a reliable backbone of the operations and there is no way back to the previous way of working. The pandemic, therefore, helped to lift the previous status quo to another level, which now forms the basis for further automatisation and digitalisation in the regulatory environment.”

Acuminor CEO Martin Nordh also added, “Whilst the early stages of the pandemic had a more negative impact for start-up RegTechs, there are positives that have emerged. The fear and uncertainty that dominated in early to mid 2020 has been replaced by the ability for RegTechs to focus on innovation to support customers in the new world of remote or hybrid working. Location has inevitably become less important, which has helped to democratise sales and being able to reach new contacts and help new customers irrespective of where you physically sit. We expect this trend to continue.”

No going back

While the pandemic has brought many challenges for companies across the globe, it has also provided many industries with a new digital gap in the market – and in the case of RegTech, there is no going back.

Muinmos CEO Remonda Kirketerp-Møller said, “RegTech was already a rapidly growing sector pre-pandemic and the pandemic has certainly been a catalyst for further growth. The increase of online financial activity due to the impact of the pandemic and the need for robust, remote solutions for compliance officers working from home resulted in unprecedented demand for RegTech solutions.

“Now that the pandemic has propelled the sector forwards, there’s simply no going back. RegTech solutions have proved highly effective and reliable for those who need to work remotely, and compliance officers have now discovered the tangible benefits of embracing these solutions – whether they are working from home or in the office. These benefits include increased speed of onboarding, accuracy, efficiency, staying abreast of regulatory changes and mitigating the risks of fines.”

Kirketerp-Møller detailed that in a nutshell, the pandemic had ‘put a spotlight on the importance of RegTech solutions’. She added that financial institutions globally have recognised the need to digitise their operations in order to enhance their processes and deliver a faster and more efficient customer experience.

Kirketerp-Møller stated that with regulation getting more and more extensive and compound, while clients are becoming more demanding and expecting as smooth and streamlined experience as possible – there was ‘simply no way’ of withstanding the pull of these forces without automation.

She commented, “RegTech is win-win – financial institutions get more and happier clients; clients receive better service; and regulators get a more stable, regulated market, with more effective enforcement. Streamlined, automated systems have been welcomed to help financial institutions deal with the surge of new clients which they have attracted. During the pandemic, these came in wild peaks and financial institutions realised they simply can’t rely solely on compliance officers and separate, unconnected solutions meant to help them.”

The Muinmos CEO highlighted that its clients had painted the same picture to them – that onboarding had become a ‘nightmare’ and they needed a system that is able to consolidate all the different systems, documents and stakeholders into one workable, followable flow that is as automated as possible to allow them to enjoy the ‘sudden rain of investors, as it falls’.

When examining in detail which particular areas have changed most over the past two years in RegTech, the areas of heightened automation and digital transformation are undoubtedly the ones that stand out. Kristoff Zammit Ciantar – founder and CEO of KYC Portal – emphasised how the pandemic sped up this shift.

He said, “When Covid-19 hit 2 years ago, we started to see a new spike in demand for advanced technology and digital transformation in the RegTech industry. Every organisation was looking to adopt more automation and less manual work, allowing their onboarding and ongoing process of KYC and AML to continue seamlessly and remotely.

“The pandemic has changed the world as we know it. While the world will eventually return to some form of normality, there are a lot of things that have changed thanks to the pandemic and will likely continue that way long after the pandemic is over. One of the main changes we have witnessed is the nature of how companies buy, as well as the reason for buying.

“We have seen many new requests coming in for the ability to digitise their on-boarding processes (obviously due to the fact that lockdowns and travel bans have led to less onsite meetings and walk-ins) and also companies who need to streamline their internal process in a digital platform so that their teams can resume working remotely. Financial institutions were already in the process of digitising their operations and the pandemic has only accelerated this shift. “

Increased demand for innovation

One of the key, if not the most vital challenge businesses faced at start of the pandemic was the need to not only keep their businesses afloat but also remain compliant in the new normal. This pushed up the demand for innovation in RegTech and created a digital shift in many organisations.

Mark Ellis – UK business development manager at Map FinTech – remarked that not only did the pandemic change the world, but also how companies do business.

He stated, “Two years on, the demand for innovation through technology has required a fundamental shift and transformation towards a digital-first approach methodology while maximizing value creation, with its widespread adoption and practice across both proactive and reactive markets.

“The pandemic and regulatory environment further exposed the need for technology solutions which offer streamlining and cost-saving initiatives with rapid deployment. This new reliance, undermining and disrupting the status quo, has become essential for organisations to adapt and to remain compliant.

“Where most industries were caught off-guard by the constraints the pandemic imposed, the RegTech sector, as an innovator, has continued to pioneer and revolutionise the control functions of companies through its Regulatory-as-a-Service (RaaS) solutions, successfully bridging the gap between the technology and reporting burdens of compliance faced by companies.”

While Ellis believes industry adoption has been multi-fold, the underlying catalyst and demand has been big data-driven, with the drivers being integration, automation and speed of access by way of the Cloud.

He continued, “With this ever-growing reliance on data, the ability to both analyse, discern and enhance in real-time, the qualitative vs quantitative constraints are further impacted by the need to safeguard data, whether this be from cybercrime, and the inherent deep-rooted concerns of identity and fraud management, or the new normal, flexible working, and with that, the key risks regarding employee communication and monitoring.

“Prior to the pandemic, the volume of regulatory change had been the primary focus for business, however, with most regulatory processes managed by way of technology, operational resilience, in its wide-ranging form, is coming to the fore, questioning how firms will manage their compliance function in this new normal. The impact of Covid-19 has undeniably led to increased demand for RegTech services over the past two years. Looking ahead to 2022 the big trend will involve the implementation of systems that can adapt to future regulatory changes.”

Ellis concluded that the ability to offer strategic and operational solutions in a holistic cloud-based services has been paramount to the widespread demand and growth of the RegTech industry.

Digital shift

The shift to a digital-dominant way of working was a long time coming – but due to the pandemic, this transition has been fitted with a rocket booster behind it. As previously emphasised, with a need for industry to ensure it is remaining within the letter of the law, new ways of ensuring compliance as well as shifting to the needs of its customers, the digital shift is well underway.

Quantifind COO Graham Bailey remarked, “The digital transformation was well underway in 2020, and then the pandemic put it into overdrive. The impact on RegTech has been an increased urgency to implement technologies that help banks adapt to the new needs and behaviors of their customers and their employees.

“Significantly more commerce and more work are now conducted in a mobile, remote fashion. The impact on RegTech is broad, but one example is the tens of thousands of financial crime investigators around the world who must conduct their work from a home or remote office, often thousands of miles from their employer. They require modern web-based investigation tools and reliable, secure, cloud-based infrastructure.

“Today more than ever, a bank’s competitive advantage relies on their ability to adapt more quickly than their competitors. In 2022 this will prompt an accelerated migration to cloud-based risk solutions that are built to evolve, in part by using external data in place of legacy mainframes and data warehouses that require lengthy change management cycles.”

With less ability to conduct in-person meetings, identity confirmation has also fallen into being a part of the digital shift – for personal and professional needs. IDMission CEO Ashim Banjeree said, “Mobile Identity Proofing has been around for a few years and has been gaining both regulatory and public acceptance. The pandemic has significantly accelerated the adoption of digital identity and expanded it beyond proofing and conventional KYC (background checks, sanctions checks, etc.). Proof of presence at the point of service is rapidly becoming commonplace as is the need for coupling health and safety, proof of vaccine for example. The pandemic is rapidly expanding the very meaning of digital identity and eligibility for service.”

Regnology SVP of product management Bodo Windmöller added, “The Covid-19 pandemic has changed the world, and also the financial services industry. As a result, challenges for both banks and regulators have increased, and big trends such as digitalization, cost reduction and sustainability have been accelerated. Those times of crisis have made regulatory technology even more important. Regulators rely on receiving data within a short period of time in order to be able to react immediately.

“Thus, during the Covid-19 pandemic, financial institutions all over the world found themselves having to adapt their reporting process to meet new regulatory requirements. We expect more financial institutions to reviewing their reporting approach and RegTech solutions that are currently used. The focus is on how data can be transferred in high quality, faster and more efficient. The evolving of the regulatory reporting landscape also comes with enhanced technical requirements on the regulator side. To ensure financial stability, it is key to find ways in how the data received from regulated entities can be used for more detailed analyses and forecasts. The keyword for this scenario: innovative RegTech and AI”

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