This blog post is co-authored by Meredith DeFazio
Every time it looks like the growth of regulatory technology (RegTech) is about to slow, spending on RegTech goes through the roof.
There has been important growth in spending through 2019 and projections show the size of the market growing to $55.28 billion by 2025, with North America expanding at a compound annual growth rate (CAGR) of 51.6 percent during this period.
Although spending remains robust, the real question is whether the promised benefits of RegTech are being delivered. With some signs pointing to slowing global economic growth, this question has even more relevance.
RegTech’s growth has been global. In India, for example, private investments have increased more than fivefold this year to US $43.5 million, funding solutions in areas including e-verification, fraud verification, Know Your Customer (KYC) compliance, artificial intelligence-based financial risk management, anti-money laundering and customer relationship management tools.
We see several key elements driving this increase in spending, including a renewed focus on financial compliance and risk management. Spending in this area is expected to see a CAGR of 49.7 percent by 2025. Additionally, spending on regulatory intelligence accounted for over 12 percent of the total RegTech market in 2018 and is expected to have the highest projected CAGR across all segments.
It remains to be seen whether past and future investments in RegTech pay off as expected. We believe that firms that have invested in RegTech may be better positioned to weather an economic downturn than those that have not invested or that have cut spending. RegTech solutions can help streamline operations and reduce costs. In addition, firms that have already made key investments may be able to limit spending during a downturn, buffering themselves against resource constraints and margin pressures and putting further pressure on firms that have yet to invest in this area.
Warning signals are abundant. In the UK, output fell by .02 percent from April to June this year, while investors continue to move funds abroad due to uncertainty about the fate of the pound (and the course of Brexit negotiations). In addition, US/China trade negotiations continue to affect global growth, causing some investors to exit emerging markets. But, as mentioned, RegTech spending and forecasts for future spending remain strong despite these and other indicators. Firms that have invested in RegTech may be very glad they did if a downturn does arrive.