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.
Sustainable Investing: Debunking 5 Common Myths
Do sustainable strategies underperform conventional ones? This infographic shines a light on the realities of sustainable investing and the ESG framework.
Sustainable Investing: Debunking 5 Common Myths
It began as a niche desire. Originally, sustainable investing was confined to a subset of investors who wanted their investments to match their values. In recent years, the strategy has grown dramatically: sustainable assets totaled $12 trillion in 2018.
This represents a 38% increase over 2016, with many investors now considering environmental, social, and governance (ESG) factors alongside traditional financial analysis.
Despite the strategy’s growth, lingering misconceptions remain. In today’s infographic from New York Life Investments, we address the five key myths of sustainable investing and shine a light on the realities.
|Sustainable strategies underperform conventional strategies||Sustainable strategies historically match or outperform conventional strategies|
In 2015, academics analyzed more than 2,000 studies—and found that in roughly 90% of the studies, companies with strong ESG profiles had equal or better financial performance than their non-ESG counterparts.
A recent ranking of the 100 most sustainable corporations found similar results. Between February 2005 and August 2018, the Global 100 Index made a net investment return of 127.35%, compared to 118.27% for the MSCI All Country World Index (ACWI).
The Global 100 companies show that doing what is good for the world can also be good for financial performance.
—Toby Heaps, CEO of Corporate Knights
|Sustainable investing only involves screening out “sin” stocks||Positive approaches that integrate sustainability factors are gaining traction|
In modern investing, exclusionary or “screens-based” approaches do play a large role—and tend to avoid stocks or bonds of companies in the following “sin” categories:
However, investment managers are increasingly taking an inclusive approach to sustainability, integrating ESG factors throughout the investment process. ESG integration strategies now total $17.5 trillion in global assets, a 69% increase over the past two years.
|Sustainable investing is a passing fad||Sustainable investing has been around for decades and continues to grow
Over the past decade, sustainable strategies have shown both strong AUM growth and positive asset flows. ESG funds attracted record net flows of nearly $5.5 billion in 2018 despite unfavorable market conditions, and continue to demonstrate strong growth in 2019.
Not only that, the number of sustainable offerings has increased as well. In 2018, Morningstar recognized 351 sustainable funds—a 50% increase over the prior year.
|Interest in sustainable investing is mostly confined to millennials and women||There is widespread interest in sustainable strategies, with institutional investors leading the way|
Millennials are more likely to factor in sustainability concerns than previous generations. However, institutional investors have adopted sustainable investments more than any other group—accounting for nearly 75% of the managed assets that follow an ESG approach.
In addition, over half of surveyed consumers are “values-driven”, having taken one or more of the following actions with sustainability in mind:
- Boycotted a brand
- Sold shares of a company
- Changed the types of products they used
Women and men are almost equally likely to be motivated by sustainable values, and half of “values-driven” consumers are open to ESG investing.
5. Asset Classes
|Sustainable investing only works for equities||Sustainable strategies are offered across asset classes|
This myth has a basis in history, but other asset classes are increasingly incorporating ESG analysis. For instance, 36% of today’s sustainable investments are in fixed income.
While the number of sustainable equity investments remained unchanged from 2017-2018, fixed-income and alternative assets showed remarkable growth over the same period.
Tapping into the Potential of Sustainable Investing
It’s clear that sustainable investing is not just a buzzword. Instead, this strategy is integral to many portfolios.
By staying informed, advisors and individual investors can take advantage of this growing strategy—and improve both their impact and return potential.
Venture Capital Mega-Deals on Pace to Set New Record in 2019
With bigger deals and multi-billion dollar IPOs, venture capital financing is reaching new heights. This infographic explores the latest trends.
The Rise of Mega-Deals in Venture Capital Financing
Venture capital “mega-deals”—which rake in $100 million or more—have taken off at breakneck speed. A total of 185 were signed by the end of September, setting the pace for a record number of mega-deals in 2019.
Interestingly, mega-deal counts aren’t the only thing ballooning in venture capital financing. Almost everything has gotten bigger: venture capital funds, deal sizes, and exit valuations.
Today’s infographic comes from Pitchbook’s quarterly Venture Monitor, and visualizes the trends shaping the U.S. venture capital landscape.
Venture capital fundraising remains robust, with $29.6 billion raised across 162 funds year-to-date. Not only that, a higher proportion of funds are quite large. Roughly 9% were sized $500 million or more, with 15 such mega-funds closed year-to-date.
What does it mean to “close” a fund? Before they can begin operations, a venture capital fund manager will raise money from investors. The fund closes to signify the end of a fundraising round and can go through multiple closings until it reaches its targeted fundraising amount.
In the coming years, fundraising will likely remain strong. Venture capital net cash flows have been positive since 2012, which means capital is being returned to the limited partners of a fund faster than they can reinvest it into new vehicles.
With this excess cash, investors will likely contribute to the next round of venture capital funds—continuing the virtuous cycle.
Total deal value is set to surpass $100 billion for a second consecutive year, partly driven by the rise of mega-deals. At every stage of startup financing, average deal sizes remain elevated.
While the focus has shifted to the massive amount of capital available at later stages, angel and seed-stage deals are still quite healthy, with an average deal size of over $2 million.
At late financing stages, the 2019 average deal size is nearly $35 million, second only to 2018’s record of $44 million. Companies continue to raise large sums of capital prior to going public, with 140 late-stage mega-deals completed in 2019.
Total exit value reached $200 billion for the first time in a decade. Interestingly, initial public offerings (IPOs) comprised a whopping 82% of overall exit value.
Multi-billion dollar IPOs continue to dominate headlines, with six such public debuts occurring in the third quarter.
|Company||Industry||Pre-Money Valuation at IPO||Amount Raised at IPO|
|Datadog||Network Management Software||$7.2B||$648M|
|Peloton Interactive||Recreational Goods||$6.9B||$1.2B|
|Cloudflare||Network Management Software||$3.9B||$525M|
Notably missing from the list is WeWork. The company failed to go public due to profitability concerns, and anchor investor Softbank recently provided $9.5 billion in bailout financing in an attempt to rescue the company.
Sky High Valuations
As venture capital reaches new heights, analysts will be paying closer attention to each startup’s profitability potential.
“… new companies are shifting their focus to measured growth in an effort to prioritize long-term success and a more sustainable, scalable business model.”
–Alex Song, CEO and Co-Founder of Innovation Department
With 2019 coming to a close, will fourth quarter venture capital activity be able to maintain its present momentum?
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