What is Regtech?

Regulatory Technology or regtech, makes use of technology to digitise operational risk and compliance processes. Much like the way fintech companies are creating superior technology outcomes to improve financial services for consumers; regtechs are doing the same for both regulated companies and the government regulators themselves.

Regtechs help optimise compliance work allowing companies to meet the growing list of regulatory obligations with less effort. This reduces the need for large “spreadsheet driven” risk and compliance teams working through an endless backlog of manual processes.

The potential for regtech goes beyond simply using improved systems and technology to optimise processes and avoid compliance cost. Used well, regtech provides greater visibility into the status of risks and obligations along with real time insights into the operational effectiveness of controls. This is particularly important for financial institutions where failure to meet obligations or ineffective controls can lead to poor customer outcomes and hundreds of millions of dollars in fines.

Australia is leading the region in Regtech

Australia currently has over 80 established regtech companies in operation making it the third largest regtech hub, behind the United States and UK. Similar markets like Canada and Singapore have smaller numbers with 26 and 21 companies respectively. Australian companies also continue to grow with numbers increasing by 15% annually. More than double the global growth rate (6%).

There are a number of drivers behind this rapid growth including a robust financial service sector, the Hayne Royal Commission and large regulator fines such as Westpac’s record $1.3 billion Austrac fine.

The 2019 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry by Commissioner Kenneth Hayne examined conduct across the financial sector with more than 10,000 complaints submitted from the public. Recommendations from the commission included adjustments to the Banking Executive Accountability Regime (BEAR). BEAR defines accountable positions within financial institutions that have various proscribed responsibilities including ensuring that appropriate governance, controls and risk management are implemented.

In this environment, it is understandable that companies are seeking better ways to understand and manage their compliance outcomes.

The future of regtech

Many challenges and opportunities remain for the developing regtech ecosystem in Australia as companies continue to scale up. Funding While Australia has ~13% of the world share of regtech companies it receives only 1% of the global regtech funding. Much of the funding in Australia is ‘early stage’ whereas funding in other established markets is more evenly distributed from early to subsequent series A to D.

The Australian based RegTech Association (formed in 2017) is working hard to support the growth of the sector and accelerate adoption. This advocacy work is one way to help raise awareness and improve funding outcomes. Other suggestions include direct government funding via grants, potentially funded via regulator fines. Growth One of the disadvantages of creating technology designed to improve governance and compliance is the target market. Large enterprises and governments typically operate legacy procurement processes. These, often paper based processes, result in multi-year sales cycles from interest to full implementation. This hampers growth during the initial stages as companies work to onboard more companies.

As regtechs continue to grow in Australia many are seeing success as they expand into the global market. The other avenue for growth is the SME (small to medium enterprise) segment. Regulation can be a burden to a business of any size, so as regtech offerings mature they can target a wider audience.

If you are interested in learning more about regtech in Australia I’d recommend the following articles/websites:

• Website - The Regtech Association
• The Australian Financial Review - Australia in a strong position on regtech
• Australian Government Information Paper - Regulatory Technology

Some Australian regtechs worth checking out:

• Frankie One - onboarding and fraud platform
• Dubber - Cloud based call recording and voice AI
• Checkbox - No code automation software