RegTech can bring benefits to a range of sectors outside of financial services; however, regulators could do more to raise awareness for the burgeoning space, according to Jeff Heine, chief revenue officer at Ascent Technologies.
As the regulatory pressure on the financial services space continues to accelerate, compliance and risk officers are faced with a barrage of potential pitfalls which could result in reputational damage and even fines.
However, organisations have been offered a life line in the form of RegTech. Due to advances in machine learning and natural language processing, RegTech has emerged from the shadow of FinTech to become much more prominent, offering a wide range of solutions to not just ease that regulatory burden, but to also hand organisations a competitive edge.
In an exclusive interview with RegTech Analyst, Heine said: “If you look at the various problems financial institutions and banks are facing right now, one of the major issues is complying with the overwhelming amount of regulation.
“As a result, this is a tremendous opportunity from a technical perspective. The idea of bringing levels of automation including AI, machine learning, and natural language processing to compliance and risk professionals — whom aren’t served very well by technology — is pretty exciting.”
According to recent research by RegTech Analyst, the sector is showing no signs of cooling and is on track to reach record levels of investment, demonstrating a rise in interest among not only investors, but financial organisations as well.
“Compliance isn’t the most glamorous of subjects; however, if you start to look at it from a different perspective, you can see a lot of costs being absorbed by these businesses, that with better preparation and compliance readiness they can avoid. Compliance costs represent an 8% tax on business — what if you take a couple of percentage points off of that and apply it towards growth? That’s a massive business proposition.”
More than $6.1bn has been raised by RegTech companies across 529 deals since 2014. The sector has expanded steadily between 2014 and 2017, with funding increasing at a CAGR of 12.4% and annual deal activity staying above 100 transactions during the period.
However, 2018 has been a standout year for RegTech investment, with funding reaching record levels. More than $2.5bn was raised in the first six months of the year, which is equal to 87.2% of the total capital raised by RegTech companies in 2015, 2016 and 2017 combined.
One of the RegTech companies to raise money in the first half of the year was Ascent Technologies. The Chicago-based company combines a SaaS platform with intelligent content curated by domain-specific AI to identify all of the regulatory obligations a business has, as well as enabling end-to-end compliance. The business uses modern techniques like machine learning and natural language processing to make it easy for compliance officers in regulated industries to see exactly what is expected of their companies, then track and report on the steps they’re taking to stay compliant.
Following a $6m Series A round in March 2018, Ascent began to expand its team. A few months after the oversubscribed round closed, the RegTech company brought in Heine as its Chief Revenue Officer, who brought with him extensive experience in creating new revenue streams for emerging solutions and markets.
“Prior to joining, I knew of InsurTech and obviously FinTech, but RegTech was almost seen as the ‘stepsister’ to FinTech. However, at the time I recognised that compliance was an underserved part of every business and people do it because they have to and not because they particularly want to.
“It is still an emerging space but we are doing a lot to accelerate what RegTech means in the market. We talk a lot about financial services because that’s our initial go-to-market, but our inbound demand from other verticals is incredible.”
Following the funding round, Ascent set about looking at how its solutions can impact other sectors which are just as unprepared and are facing an ‘overwhelming amount of new laws, federal rules and regulations’. While Ascent is yet to kick this approach off, Heine believes this development is what makes RegTech so exciting.
“Our initial go-to-market is to financial services but we will go into other markets. The level of regulations affecting companies isn’t just in financial services; it’s one of the more prominent spaces, but you can go to pharma, insurance, retail, consumer packaged goods, logistics, etc. Compliance is still a heavy a cost on their businesses.”
One of the biggest problems facing the industry is not the lack of awareness of regulations, but the lack of awareness around how technology like Ascent can help, according to Heine. With a variety of legislations in place, each consisting of hundreds, if not thousands, of paragraphs of rules — it can be hard to keep track.
“Now that I am working for a RegTech company, I am even more surprised at the amount of regulation out there and see a greater need for RegTech. The universal truth is that the challenge isn’t exclusively being unaware of the obligations that are out there, but it also comes down to a lack of capacity to keep up with all the regulatory changes.”
Despite its benefits, the financial services space has still been slow to adopt and onboard RegTech solutions. According to Heine, this lack of adoption can be put down simply to the lack of awareness from the financial services industry as it’s an emerging space which people are just not familiar with.
“A lack of awareness in this space can really hurt providers like Ascent as well as the companies that can enjoy the benefits of providing automated support for compliance and risk. Being a company that has been in the commercial market for fewer than three years, a challenge has been just making people aware that there are solutions available to help with these problems. It’s when we start to discuss with them what’s possible that we get very positive responses.”
Heine understands that regulators aren’t best served by endorsing specific RegTech providers; however, he believes they can do more to raise awareness. But helping the companies apply this technology to help comply is in everyone’s best interest, including consumers.”
Ascent was formed by a team of compliance officers, lawyers, data scientists, and technologists uniting to help businesses comply with their obligations and work to limit their future exposure to risks. Along with its property technology, the company combines decades of experience for actionable insights.
The combination of artificial intelligence and human domain expertise, as well as the approach of starting ‘from the bottom up’ gives Ascent a competitive edge in the market, according to Heine.
“We didn’t create an AI engine looking for problems and then stumble upon RegTech. It was built around the regulatory domain and how laws and regulations are constructed. It started with human beings which understand that domain, and we have applied technology to automate various parts of that process, making it faster and more accurate. That’s the key.”
For Ascent’s full profile click here:
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