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The Rise of Regtech: How Software Can Help Cut Regulatory Risks

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The Rise of Regtech: How Software Can Help Cut Regulatory Risks

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?

Regtech solutions usually operate as cloud computing or software-as-a-service (SaaS) applications, offering companies a plug-and-play solution to their regulatory woes.

This process might look something like the following:

  1. A regtech tool monitors transactions taking place online in real-time
  2. This tool identifies issues or irregularities in the digital payment sphere
  3. Outliers are relayed immediately to a financial institution, so they can analyze the transaction and determine if it represents a fraudulent transaction
  4. 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.
  • Monitoring
    Companies like IdentityMind Global provide risk management for digital transactions.
  • Reporting
    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.

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Mapped: The World’s Top 50 Science and Technology Hubs

This map explores the world’s top 50 science and technology hubs based on the Global Innovation Index 2023 data.

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This map explores the world’s top 50 science and technology clusters, based on data from the Global Innovation Index 2023.

The World’s Top 50 Science and Technology Hubs

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

In 2023, the world experienced another wave of science and technology (S&T) innovation, from the introduction of the first over-the-counter birth control pill in the U.S. to the stunning growth of ChatGPT and artificial intelligence.

This map explores the world’s top 50 science and technology hubs leading these innovations based on data from the Global Innovation Index 2023. Hubs were ranked by their combined share of international patent applications and scientific publications.

East Asia Dominance in S&T

The world’s five most significant science and technology hubs are in East Asia.

The top-ranked Tokyo-Yokohama cluster made up just over 10% of all patent applications between 2018-2022.

ClusterCountry/EconomyPatent ApplicationsScientific Publications
Tokyo-Yokohama🇯🇵 Japan127,418115,020
Shenzhen-Hong Kong-Guangzhou🇨🇳/🇭🇰 China/Hong Kong113,482153,180
Seoul🇰🇷 South Korea63,447133,604
Beijing🇨🇳 China38,067279,485
Shanghai-Suzhou🇨🇳 China32,924162,635
San Jose-San Francisco🇺🇸 U.S.47,26958,575
Osaka-Kobe-Kyoto🇯🇵 Japan38,41351,948
Boston-Cambridge🇺🇸 U.S.18,18476,378
San Diego🇺🇸 U.S.23,26120,928
New York City🇺🇸 U.S.13,83874,849
Nanjing🇨🇳 China7,143113,488
Paris🇫🇷 France15,17661,692
Wuhan🇨🇳 China6,25089,756
Hangzhou🇨🇳 China10,75562,924
Nagoya🇯🇵 Japan17,73616,091
Los Angeles,🇺🇸 U.S.11,55644,058
Washington, DC–Baltimore🇺🇸 U.S.5,52576,039
Daejeon🇰🇷 South Korea12,27525,552
Xi'an🇨🇳 China1,78686,937
London🇬🇧 Great Britain5,98159,068
Seattle🇺🇸 U.S.11,47220,322
Munich🇩🇪 Germany10,24824,239
Qingdao🇨🇳 China7,28639,745
Chengdu🇨🇳 China2,04667,334
Cologne🇩🇪 Germany7,46634,286
Amsterdam–Rotterdam🇳🇱 Netherlands4,23052,864
Taipei–Hsinchu🇹🇼 Taiwan3,90752,752
Houston🇺🇸 U.S.8,47524,636
Stuttgart🇩🇪 Germany9,34214,874
Tel Aviv–Jerusalem🇮🇱 Israel7,26824,219
Moscow🇷🇺 Russia2,03655,086
Chicago🇺🇸 U.S.5,76332,343
Singapore🇸🇬/🇲🇾 Singapore/Malaysia4,86136,803
Tehran🇮🇷 Iran24963,113
Philadelphia🇺🇸 U.S.5,39032,309
Tianjin🇨🇳 China1,26753,680
Changsha🇨🇳 China1,14952,768
Stockholm🇸🇪 Sweden6,06919,984
Minneapolis🇺🇸 U.S.6,62515,375
Hefei🇨🇳 China2,54938,974
Eindhoven🇳🇱 Netherlands7,9825,339
Melbourne🇦🇺 Australia2,12640,056
Berlin🇩🇪 Germany3,62430,464
Chongqing🇨🇳 China1,65141,412
Frankfurt am Main🇩🇪 Germany5,41018,590
Sydney🇦🇺 Australia2,53933,695
Raleigh🇺🇸 U.S.3,05730,206
Madrid🇪🇸 Spain1,58038,849
Zürich🇨🇭 Switzerland3,75924,437
Milan🇮🇹 Italy2,57831,077

The first American cluster on the list, the San Francisco Bay Area, is home to major tech companies such as Adobe, eBay, Google, and PayPal.

Along with Cambridge in the United Kingdom, the San Francisco Bay Area is one of the most S&T-intensive clusters relative to overall population density.

For the first time, China topped the list of countries with the highest number of clusters among the top 100, having 24 total. The United States follows, with 21 clusters, then Germany with nine.

In addition, nearly every Chinese cluster rose in the rankings compared to last year, with only Beijing falling by one place.

São Paulo (Brazil); Bengaluru, Delhi, Chennai, and Mumbai (India); Tehran (Islamic Republic of Iran); Istanbul and Ankara (Türkiye); and Moscow (Russian Federation) are the only middle-income economy clusters outside China.

According to the Global Innovation Index, the U.S. leads in research and development (R&D) expenditure, followed by China, Japan, Germany, and the Republic of Korea.

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