The Rise of Regtech
The volume of data produced by the financial industry today is massive. Leveraging this data to extract customer insights and prevent fraud requires analysis beyond the ability of any single team. Regulatory technology – or Regtech – is the branch of emerging technology rising to meet the challenge.
Today’s infographic from Raconteur offers a glimpse into the world of regtech, and how it can help financial services firms in finding efficient, cost-effective methods to comply with regulatory standards.
What is Regtech?
Following the financial crisis of 2008, the finance industry was hit with a number of new regulations designed to reduce risk and prevent fraud. Finance companies who fail to comply with these stringent regulations can face steep fines, but failing to find efficient ways to stay compliant can also impact the bottom line.
Regtech fills this gap with tech-driven solutions for financial companies to cut costs and streamline processes, while guarding against fraud and cybersecurity risks. They can remain compliant without sacrificing customer engagement, allowing them to continue to grow their businesses.
How does Regtech work?
This process might look something like the following:
- A regtech tool monitors transactions taking place online in real-time
- This tool identifies issues or irregularities in the digital payment sphere
- Outliers are relayed immediately to a financial institution, so they can analyze the transaction and determine if it represents a fraudulent transaction
- This early-warning system allows institutions to identify potential threats at the outset, giving them valuable time to minimize risks associated with lost funds or data breaches
Emerging technologies like data analytics, artificial intelligence, and distributed ledgers fuel these regtech solutions, allowing them to collate relevant big data sets and analyze them using sophisticated algorithms.
How can Regtech work for me?
Not all regtech solutions are created equal – different software is coded to look for different things, so companies need to select the right suite of regtech solutions for their unique challenges.
Just a few of these options show the need for different applications:
- Account verification
These applications help companies gather information about customers to prevent fraudulent accounts. Examples include Trunomi, a company that manages consent for personal customer data; or PassFort, which automates the collection and storage of data for due diligence.
Companies like IdentityMind Global provide risk management for digital transactions.
Companies like Suade help financial institutions to compile and submit required regulatory reports.
These examples are just the tip of the iceberg. As maintaining compliance grows in complexity, regulation technology will rise to meet the challenge, and so too the regtech budgets must grow to help companies keep up with demanding regulations.
The Costs of Regulation
Regtech funding has increased steadily over the past few years. 2017 saw more than $1 billion invested in the space – triple the investment from the preceding five years. However, 2018 promises to dwarf these figures, with more than half a billion dollars invested In the first quarter alone.
Perhaps the motivation for investors digging into regtech has something to do with the high costs of neglecting it. US Bancorp was forced to pay $613 million in penalties for their flawed anti-money-laundering scheme and violations of the Bank Secrecy Act, while Commonwealth Bank of Australia shelled out more than $500 million for similar penalties.
Financial regulations can make or break a finance firm – and given the rapidly increasing number of regtech providers entering the space, it seems there’s no shortage of solutions for forward-thinking firms.
Ranked: The Richest Countries in the World
These countries hold 74% of the world’s $204 trillion in private wealth. See the 10 richest countries, and how their totals have changed over time.
Ranked: The Richest Countries in the World
Since the 2008 financial crisis, global private wealth has been steadily growing.
In fact, overall private wealth worldwide reached $204 trillion in 2018, which is a 26% increase over the past decade.
This week’s chart, which uses numbers from the Global Wealth Migration Review 2019, examines the top 10 richest countries and the growth of private wealth from 2008 to 2018.
|Rank||Country||Private Wealth in $USD (2018)||10-yr change (%)|
|#1||🇺🇸 United States||$60.7 trillion||27%|
|#2||🇨🇳 China||$23.6 trillion||130%|
|#3||🇯🇵 Japan||$19.1 trillion||18%|
|#4||🇬🇧 United Kingdom||$9.1 trillion||4%|
|#5||🇩🇪 Germany||$8.8 trillion||7%|
|#6||🇮🇳 India||$8.1 trillion||96%|
|#7||🇦🇺 Australia||$6.0 trillion||48%|
|#8||🇨🇦 Canada||$6.0 trillion||23%|
|#9||🇫🇷 France||$5.9 trillion||-7%|
|#10||🇮🇹 Italy||$3.8 trillion||-14%|
Combined, the 10 countries above represent 74% of total private wealth worldwide.
These trends are staying consistent with the numbers seen in 2017. Asian countries such as China and India showed the highest uptick in wealth gains, holding their #2 and #3 spots on the list, while European countries such as France and Italy actually saw a decrease.
Trends in the Wealth Landscape
Over the last 10 years, China has experienced the largest increase in wealth at 130%. This growth also means that China now boasts more high-net-worth individuals (HNWIs) than any other country except the United States.
While India doubled its total private wealth over the 10-year period, wealth per adult remains at just 22% of the global average.
The U.S. continues to lead in wealth numbers, holding 30% ($60.7 trillion) of the world’s total private wealth. Unsurprisingly, the U.S. remains home to the most millionaires in the world.
The World’s Millionaires: Top 3 Countries
- United States: 17,350,000
- China: 3,480,000
- Japan: 2,809,000
- World total: 42,155,000
Source: Credit Suisse
Australia now tops the above list in terms of highest wealth per adult, and it is second in the world only to Switzerland in the context of major nations.
Despite the recent turmoil and uncertainty stemming from Brexit, the United Kingdom still saw overall growth in the past decade, moving from #5 to #4 rank on the list of countries with the highest private wealth.
Projections from New World Wealth estimate that total global wealth will reach $291 trillion by 2028, driven by strong growth in Asia.
Rising Wealth Inequality
Unfortunately, this growth is also linked to the growing problem of wealth inequality gap across the globe, and the gap seems to get bigger every year.
The average global wealth per adult is approximately $27,000 – but of the total adult population, 64% have a net worth of less than $10,000. The bottom half of adults in the world now own less than 1% of all household wealth.
By contrast, 85% of all household wealth is owned by the richest 10%, and the top 1% own almost half (47%) of the world’s household wealth.
Animation: How Billionaires are Preparing for the Next Bear Market
No one likes to lose money, even if you have billions to spare. See how the world’s most elite investors – like Ray Dalio – are protecting themselves.
How Billionaires are Preparing for the Next Bear Market
No one likes to lose money, even if you have billions to spare.
It’s why the prospect of a bear market – a prolonged downturn which sees stock prices fall by at least 20% over two months or more – is something that keeps even the world’s most elite investors awake at night.
To hedge against this concern, the world’s billionaires use a variety of strategies and tactics to protect their wealth, including setting up their portfolios with specific asset allocations that can help soften any blow caused by an extended market downturn.
Today’s animation comes to us from Sprott Physical Bullion Trusts and it highlights a strategy being used by billionaires ranging from Ray Dalio to John Tudor Jones II.
Because market sentiment can change so quickly in the market, these elite investors protect themselves by having diverse portfolios that include uncorrelated assets.
While this sounds complicated, uncorrelated assets are simply investments that don’t move up or down in the same direction as the other asset classes in the portfolio. A small allocation to these uncorrelated items can help protect the value of a portfolio when market sentiment changes.
The King of Uncorrelated Assets
What kind of asset classes can be used for this kind of purpose?
While options like real estate, commodities, and cash can contribute to a more diversified portfolio beyond traditional stocks and bonds, many experts say that gold is the undisputed king of uncorrelated assets.
The price of gold doesn’t usually doesn’t move with the wider stock market – and often, because of its history, the yellow metal can even increase in price during the course of a bear market.
Here are some of the reasons billionaires turn towards an allocation in gold:
- Gold has acted as a store of value for thousands of years
- Gold can lower the volatility of a portfolio
- Gold can act as a hedge against inflation in some scenarios
- Gold is a traditional safe haven asset that investors flock to when the market goes astray
To kick off 2019, a new billionaire jumped onto the gold bandwagon – along with previous advocates such as Ray Dalio, David Einhorn, John Paulson, and John Tudor Jones II.
The newest entry to the club is Sam Zell, the pioneer behind real estate investment trusts (REITs). He bought gold for the first time in January, citing that it is “a good hedge” and that “supply is shrinking” as new mine discoveries dries up.
With market volatility back in the fray, it’ll be interesting to see how many more of the world’s elite investors also jump on the bandwagon.
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