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Financial services and other businesses across the world will spend hundreds of billions on regtech in 2028 as “increasingly complex” regulation drives a 124% increase investment in technologies such as artificial intelligence (AI) and blockchain.
Industries such as digital healthcare and online gambling are driving regtech investment beyond the finance sector.
Regtech is software for managing regulatory compliance. Companies invest in it to save time and money, allowing resources that were once devoted to regulatory compliance to be diverted elsewhere. For example, banks invest huge amounts on the people and processes required for compliance with industry regulations.
“We anticipate rising levels of enterprise investment as they recognise the vast efficiencies regtech can create,” said Juniper Research. The latest numbers from the research firm said this year will see $83bn spend on regtech, a subset of the fintech sector, climbing to more than $200bn in 2028.
“Increasingly complex regulatory requirements are driving corporates to adopt a range of new technologies to facilitate compliance,” added the firm.
The research revealed that blockchain is being adopted by financial services businesses in their strategies to prevent money laundering, through shared blockchain ledgers.
Preventing money laundering is a huge challenge for the finance sector. Money laundering – and its links to organised crime – is a serious global problem in which banks find themselves at the centre. According to the UN, up to $2tn is moved illegally each year, with criminals using banks to hide money. In the UK, the National Crime Agency (NCA) estimates that money laundering costs the country’s economy £24bn each year. Banks that have been found to be neglectful of their anti-money laundering processes have come in for huge reputational damage and financial penalties.
In 2021, NatWest Bank admitted that operational failures, including weaknesses in automated monitoring systems, meant that it failed to prevent the money laundering of £400m. It pleaded guilty at Westminster Magistrates’ Court to failing to comply with anti-money laundering regulations between 2012 and 2016.
There have been some huge financial sanctions on banks. Swedbank was fined €347m by regulators in Sweden and Estonia in 2020 for breaching money laundering laws; Dutch bank ING was fined €775m in 2018 for failing to prevent the laundering of hundreds of millions of euros between 2010 and 2016; and, in 2017, Citigroup agreed to pay almost $100m and admitted criminal violations as it settled an investigation into breaches of anti-money laundering rules involving money transfers between the US and Mexico.
Juniper said natural language processing technology is being used to detect malicious actors in emails and phone calls to identifying misconduct, conflicts of interest and financial crime.
“The most successful [regtech suppliers] will leverage AI to reduce the manual requirements needed by compliance teams and allow them to focus on tasks that require human elements, lowering costs and increasing productivity significantly, at a time of strong cost pressures,” said Juniper.
The research found that the leading players offered streamlined identity verification automated by AI, and were able to successfully position themselves in many different industries, as regtech expands beyond just financial services. To stay ahead of their competition, vendors must develop solutions that utilise AI and machine learning, which can automate processes such as identity verification.
Beyond financial services, Juniper the next growth areas in regtech will be in the healthcare and gambling sectors.
In a report last year, it said: “Regtech [tech suppliers] must provide verification services in emerging areas where compliance is being disrupted, such as digital healthcare and online gambling.
“Impending changes to regulations in these markets will provide significant opportunities for regtech vendors to broaden their focus beyond financial markets to capitalise on new addressable user bases.”
Read more about the fintech sector
- Investment in UK fintech firms increased by 24% to $9.1bn in the first half of 2022, compared with the same period in 2021.
- UK fintech sector attracted the most investment ever in 2021, following a slowdown in 2020.
- Innovate Finance reveals decrease in UK fintech investment, but report methodology leaves this open to change.