It is often said that RegTech is the new FinTech. That does not seem entirely correct.
While FinTech companies are offering financial services to customers (often in competition with traditional financial service providers), RegTech companies are more to be seen as technical support service providers. They are at the service of both disrupting and traditional financial institutions. RegTech, such as FinTech, InsurTech, and many others, is however also an example of an industry that is being rapidly altered by the use of technology. The industry, in this case, is not so much regulation itself, but rather the need to comply with the ever-growing regulation (mainly) in the financial sector.
Rise of RegTech
The origins of RegTech probably lie in the 2008 financial crisis. As a result of this crisis, the already heavily regulated financial sector has been flooded with new regulations to prevent any new systemic failures. Compliance with these new rules comes at a very high cost in the industry, specifically in a B2C environment, with small margins. The growing presence of technology and automation in combination with the need to reduce the compliance risks at a sharper price seems to be the perfect breeding ground for RegTech initiatives.
Scope
In these still early stages of RegTech development, there is a tendency to focus on only certain areas of regulation:
Reporting obligations: Regular updates on products, clients, turnover, accounts, etc. are requested by the regulators to monitor the status of industry players.
These obligations require huge efforts in terms of data management, that could be supported by specialised RegTech companies.
Client onboarding: A second important work area for RegTech’s is client onboarding. AML Client identification, know-your-customer (KYC) obligations under MiFID and other regulations, connected client information obligations, etc. are making client onboarding very expensive.
Automated RegTech solutions, especially those based on artificial intelligence and machine learning can help lower the onboarding costs and hence raise profits.
What about the Belgian RegTech scene?
RegTech is currently still underhyped all over the world if compared to other ‘tech’ industries, but clearly, has huge potential. RegTech companies do not offer actual financial services and are, therefore, not subject to prudential license requirements themselves. However, it goes without saying that RegTechs should have an in-depth knowledge of the financial regulation their potential clients are dealing with, both regarding prudential requirements and obligations related to their activities.
Today there are still very few Belgian-based RegTech companies, and most of them are working on reporting or KYC-as-a-service solutions.
Clearly, there is still a market to conquer for players having a sound knowledge of the needs of Belgian institutions and the sensibilities and expectations of the appropriate supervisors.
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Philippe De Prez
For further information on (working with) RegTech’s or becoming a RegTech in Belgium, contact our Digital Finance team: digitalfinance@simontbraun.eu [1]– +32 (0)2 543 70 80