Regtech is earning regulatory endorsement all around the world, including in Asia-Pacific, where initiatives in locations such as Hong Kong, Japan, Singapore and Australia are being launched to address compliance and regulatory challenges more efficiently.
Since the financial crisis of 2008-2009, banks across the world have dealt with the numerous new regulations by hiring thousands of compliance officers. The new reforms have dramatically increased challenges and costs for the financial sector related to compliance, reporting and supervisory requests.
“This is particularly the case in Asia, where financial institutions often have to deal with more than a dozen different regulatory regimes, each with a different set of rules and requirements,” Henri Arslanian, PwC’s Fintech lead for China and Hong Kong, told Forbes in a recent interview.
“While complex cases may still require human oversight, many of the lower-risk checks could easily be handled by regtech solutions, thus aiding banks in their cost and headcount reduction efforts.”
Growing compliance burden
Regulatory technology, or regtech, is a classification of technologies specifically addressing regulation and compliance issues in the financial industry.
Regtech companies promise to disrupt the landscape by providing more efficient, tech-enabled solutions that tackle anything ranging from regulatory reporting and risk management, know-your-customer (KYC) and onboarding, to compliance monitoring, and fraud detection, to the ever-increasing demands of compliance.
Their growth has been fueled by a general desire from the banking industry to use innovative technologies to address regulatory compliance, which has been, in terms of costs and resources, one of the sector’s greatest burdens.
According to the Financial Times, large banks such as HSBC, Deutsche Bank and JP Morgan spend well over US$1 billion a year each on regulatory compliance and controls. Spanish bank BBVA estimates that on average financial institutions have 10 to 15% of their staff dedicated to this area.
When compared to fintech, the regtech industry has been growing and moving so much quicker, Arslanian said. This is because regtech is an area in which everyone – banks, governments and startups – could win by cooperating.
“Regtech startups are almost all B2B offerings, which are not here to disrupt banks but rather to empower them,” Arslanian said. “In addition, many financial institutions are happy to potentially cooperate with their peers if that would result in cost reductions for everyone.”
In Asia, the various KYC utility initiatives being discussed in countries like India and Singapore are examples of banks coming together to explore models that would not only enable cost savings for banks but also significantly improve their customers’ experience, he noted.
Many of these initiatives seek to enable customers to go through the onboarding process only once and allow other banks to access that information.
Singapore to become Asia’s regtech leader
Awareness of regtech is burgeoning in Singapore as the city-state embarked a few years ago in a nationwide digitalization and modernization push through the Smart Nation and Smart Financial Center initiatives.
The inaugural Fintech Festival last year shined the spotlight on the emerging industry through the ABS-MAS Regtech Forum, the first conference in Asia to focus on regtech.
Today, Singapore hosts numerous incumbent Regtech Solutions Players that are offering creative regtech solutions. Startups include for instance, Datarama, which provides a risk management platform to make compliance-driven due diligence more efficient and affordable. Another startup is Cynopsis Solutions, which provides screening tools for KYC and transaction monitoring. Singapore-incorporated Otonomos uses blockchain technology to change how companies are incorporated, administered, and get funded.
But of course the Tech in Regtech is still in the beginning and startups are still rare, especially in South East Asia. Established lawyers, consultants and incumbent companies still dominate the local market. But they are getting more and more competition. 2016 Fenergo from Ireland , an established provider of Regulatory Onboarding & Client Lifecycle Management solutions for banks, has officially launched its Singapore operations.
Also global consulting firm and leading Regtech and Risktech provider BearingPoint, announced this week further growth and expansion in Asia.
BearingPoint further expands in Asia (Regtech in Indonesia)
The company unveiled a new Indonesian model for their tax reporting solution EasyTax. The module enables banks to produce Indonesian tax reports and to provide their Indonesian clients with a service to ease their individual tax filing duties defined by their tax authority.
The solution offers a wide range of country specific reporting modules and services focusing on tax law. More than 80 financial institutions worldwide already produce tax reports with EasyTax for their clients. EasyTax clients include private and wealth management banks, family offices, retail banks, banking package providers and tax reporting service providers.
“With our offices in Singapore, Shanghai and Hong Kong we have direct access to the Asian market and we see an increasing demand for APAC-specific tax reporting modules,” said Ronald Frey, Partner at BearingPoint Switzerland, responsible for BearingPoint’s global tax software business. “Further modules for Australia, China, Hong-Kong, India, Japan, Malaysia, Singapore and New Zealand are of highest priority and are short-listed to be developed upon request.”
Echoing Frey, Dirk Jaensch, Partner at BearingPoint Singapore, said that the company expects significant growth of clients demanding sophisticated tax reporting from financial institutions in Indonesia and other Asian countries as well.
BearingPoint’s EasyTax is a country specific client tax reporting solution. The firm also offers FiTAX, a standard software solution to produce CRS / FATCA / QI tax reports and which covers local reporting schemas in more than 80 countries to enable financial institutions across the world to comply with FATCA, CRS and local requirements on tax-reporting under the Automatic Exchange of Information .
Their Abacus360 Banking solution, an integrated platform for regulatory management, analytics and reporting will allow financial institutions to comply with MAS610 and the increased requirements in terms of quality of data which needs to be reported to the authority.
Representing the global Regtech industry
To represent the global regtech industry, the International Regtech Association (IRTA) was launched in May and counts over 100 founding members.
The organization aims to accelerate the evolution of regtech, drive innovation, and facilitate integration and collaboration throughout the entire global regtech ecosystem.
IRTA has three vice chairs responsible for different geographies: Patrick Barnet, CEO of regtech solutions provider Qumram, looks after Europe; Matt Elton, CEO of management consultancy FinnoLux, is responsible for the Americas; and Julian Fenwhick, founder and CEO of online legal compliance training provider GRC Solutions, looks after Australia.
According to Deloitte, regtech companies are mainly concentrated in the US and Europe. Europe currently hosts 58 of the world’s 80 regtech companies.
The majority of regtechs are still in the startup phase and are no older than three years old. However, more than 40% have more than ten employees, which gives a good indication of the potential of the market. This also shows that there is a long way to go before many regtechs build enough reputation to really get to the movers and shakers of the financial industry.
Featured image: Compliance, via Creative Common Images.