According to Jeff Yastine, whenever bureaucrats make their presence in an industry, chief compliance officers should be recruited immediately. In addition, they should be accompanied with an entire department of their lieutenants to ensure that every individual in the company complies with the new command. However, whether extra rules make things better or worse is a debatable issue. Often, more rules results in increased costs for a company. It also means a reduction in stock prices unless a business embraces regulatory technology.
Regtech is the use of tools such as artificial intelligence and blockchain technology among other types of advanced technology with the aim of cutting down on regulatory costs. This strategy offers a huge investment opportunity. Recently, Bain & Co. identified 80 young firms that it referred to as “emerging regtechs.” The company’s products and services are slowly being employed in compliance-heavy sectors such as the insurance industry where they require tech-supplied boost to profits. A large number of the firms are still privately-held. Most of these services are in the startup stage with unknown names like OnRule, Taxometry, Flexeye and ComplyAdvantage.
However, a few publicly traded regtech firms are likely to expand considerably in the coming years. According to Let’s Talk Payments, a financial technology website, international banks are spending nearly $70 billion to ensure compliance with all the set of laws in the industry. This amount is likely to rise to around $120 billion in the next three years, as the institutions increase their spending on regtech products and services.
The forms that are used by many banks to make customers checkmark and sign to authenticate their identity when they open a new account relates to the federal anti-corruption and anti-money laundering rules. Fulfilling such rules and complying with current regulations via legacy systems can take nearly two years at a cost of over $10 million in leading banks. If handled via a regtech specialist, it may take three months at a cost of $300,000.
One thing that points to the investment potential in the industry is the regulators that are taking notice. Some entities have brought the young companies into their system. A number of premier institutions have planned to incorporate regtech firms into their bureaucratic orbit. These institutions include the U.S. Office of the Comptroller of the Currency, the Monetary Authority of Singapore and the Bank of England.
About Jeff Yastine
Jeff Yastine serves as the editor in chief of the Total Wealth Insider, a leading stop shop for achieving a richer and more prosperous life. In 2015 Jeff started working for Banyan Hill as the editorial director. Yastine has over two decades of experience as a financial journalist and stock market investor. The visionary leader has been at the heart of financial world events.