Financial Services Blog

Facing increasing regulatory activity and higher compliance costs, investors and venture capital firms are placing large bets on regulatory technology (RegTech). The RegTech industry, in turn, is growing as financial services firms seek to take advantage of technological innovation.  Preliminary analysis of 2017 global funding shows more than 225 RegTech deals with an aggregate value of more than $2 billion — a significant increase over 2016 activity1 — and investment in RegTech is largely expected to increase even more in 2018.

Investments in RegTech look particularly attractive given the high cost of non-compliance.  According to a Moody’s Investors Services research document, between 2008 and 2016, U.S. and European banks have set aside about $273 billion in provisions to pay for fines, so advances in technology that help make compliance easier or more effective should be welcome.  In addition, financial services firms continue to face challenges in areas such as anti-money laundering (AML), data privacy, sales practices, and corporate conduct.  For example, the emergence of distributed ledger (blockchain) technology and the rise of crypto-currencies such as Bitcoin creates new considerations for firms seeking to comply with these areas and other regulatory requirements.

Regulators globally have continued to accept and, ultimately, to embrace RegTech, as demonstrated by their creation or sponsorship of various RegTech sandboxes and accelerator programs. However, many traditional rules and regulations may require revisiting to reflect new technologies that could make compliance easier, as many were written in a different time, when such technology did not yet exist or hadn’t even been envisioned.  Blockchain technology, for example, could potentially be used to comply with records retention requirements given the native archiving and record keeping attributes of distributed ledgers.

One of the attractions of RegTech is that it offers firms access to breakthrough innovations in highly specialized areas of great interest to banks. However, RegTech start-ups – which are typically highly nimble, entrepreneurial and innovation driven – are not necessarily an ideal “fit” for the cultures of large, highly regulated financial institutions.

We see 2018 as a pivotal year for RegTech.  We believe financial services firms face a changing landscape, including increasing their transition to open, API-based technology architectures that are conducive to integrating RegTech. As well, regulators are encouraged to revisit and update rules in consideration of new technologies while fostering innovation and promoting uptake.  RegTech providers should demonstrate their value and effectiveness in easing various regulatory burdens to their investors, the firms that adopt their products or services, and regulators alike.

While there are usually technology-related areas of focus for most regulators each year, 2018 is shaping up to be a bit different, as FINRA has explicitly referenced RegTech in its 2018 priorities.2  FINRA and other regulators have already scheduled or are planning to schedule various forums and initiatives to foster innovation and adoption of RegTech.3  As J. Christopher Giancarlo, Chairman of the U.S. Commodity Futures Trading Commission, recently noted, “RegTech poses significant opportunities for those involved in our financial markets, both participants and regulators. I suspect we are in the “early innings” of this space …, but believe that it is imperative for all involved stakeholders to do their part in understanding emerging technologies and think creatively about incorporating such technologies.”

In this blog series, we will be looking at how financial services firms, RegTech companies and regulators can work together to strengthen their approaches to RegTech.  Although there are barriers to the successful adoption of RegTech, we believe these can be overcome through effective collaboration, all with an eye towards protecting end consumers (that is, customers) as well as the integrity of the overall financial system.

We will be exploring these approaches in upcoming blogs, but in the meantime, we urge readers seeking more information to look at the posts linked below.


  1. “The Global Fintech Report Q3 2017,” CB Insights, Research Report. Access at:
  2. “Cover letter from FINRA President and CEO, Robert Cook,” Financial Industry Regulatory Authority, January 8, 2018. Access at:
  3. “Remarks of Chairman J. Christopher Giancarlo at the Singapore FinTech Festival,” Commodity Futures Trading Commission, November 15, 2017. Access at:



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