Regtech 100 – UK Leads, Asia Opportunities and Europe Trends

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Blockchain in 2015, Insurtech in 2016 and now its RegTech’s turn to grab the headlines. Fintech Global recently launched a Regtech report, and named 100 Regtech firms across the globe, and in doing so provided some excellent insights into Regtech and trends within this cluster. The shortlist of the global 100 firms was prepared from a list of 416 firms in this space.

Regtech is different to other key areas of Fintech, in that, it not only needs a sound Financial services industry, Innovation ecosystem and supply of skills, but also an engaged regulator. And most of the peaks within the industry will invariably be aligned to implementation timelines of key regulations.

With these criteria in mind, it is not surprising to see that about 50% of the top 100 Regtech firms are based out of UK and the US, with UK getting its nose ahead with 26 of them. This is just a validation to the excellent efforts of the UK regulators and policy makers in supporting innovation and investments.

Apart from a huge percentage of AML/KYC firms and investments, regulation around transactional reporting/monitoring (MIFID II) and data sharing and security (GDPR, PSD) had the most investments. This is clearly due to the imminent deadlines for these regulations in 2018.

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There is a point of discussion here. Have we already seen the best days for Regtech (or very nearly there)? . There are many compliance processes within banks, that would benefit from efficiencies that Regtechs bring. And knowing banks, it would take them a few years to leverage Regtech to the fullest. But banks are motivated to focus on Regtech because of punitive actions from the regulators if they failed to be compliant.

2018 is one big year for regulatory timelines. Most of the capital injection into RegTechs would have happened by now, if they were to deliver solutions to banks by 2018. The chart above shows about 30% of investments going into MiFID II, GDPR and PSD2 focused Regtechs.

So what happens after all the regulatory deadlines of 2018-2019 are met? will the demand for these Regtech solutions sustain? Of course, processes that need efficiencies will still use Regtech solutions, however, will we see this acceleration and growth again? I doubt that.

The other aspect worth noting is how UK-Europe centric these regulatory solutions are. As per the report, about 42.4% of capital into Regtech was within MiFID II, Basel III, PSD2, Solvency II and AIFMD. All of these Regtech firms are addressing UK-European regulations based problems/solutions. So can we say Regtech in UK/Europe has peaked? Not yet, Brexit could be the saviour.

If the tectonic plates on the UK/European regulatory regime moved due to Brexit, these firms will need to adapt. There will be some casualties, but also massive opportunities. The quickest to adapt through that transition would emerge as global Regtech leaders, and that is a space to watch.

It is also good to see that not all Regtech activity is focused within the Big two (UK/US). We have about 21 companies out of Ireland, Switzerland and Australia in the Regtech 100. Also, Asia RegTech hasn’t really made much of a mark on that list, which is where the opportunity is.

There are lots of regulatory inconsistencies across the Asian Fintech hubs, and it is a good time for both local firms looking to make to the next Regtech 100 list, and for already established players to expand into Asia. Also, a lack of standardised regulations across some of these regimes is an opportunity for Regtechs to focus on. Interoperability could be the next big thing within Regtech.

This week, 2017 Fintech Awards in Singapore announced by Monetary Authority of Singapore (MAS) had RegTech as one of the core themes. There were about 300 firms that took part in the competition, and MAS awarded about S$1.15 Million to 10 firms that were shortlisted. Many of them have a strong Regtech focus, and it would be good to see some of them make it to the next Regtech 100 list.

There is so much happening in this space, and it is exciting to see various global trends evolving. While some indicators point to a European saturation, Asia is definitely the next stop for Regtech.


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

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