In 2008, there was a great financial crisis in the banking industry. The year saw many bad loans and subsequent bank failures. Eventually, this led to many compliance regulations in the banking industry. Failure of these compliances resulted in penalties being imposed on banks.
Right from the beginning of the above crisis, the area of compliance regulation has expanded considerably. Banks had to strengthen their back offices and make changes providing for better risk management. The new Financial instruments directive instructed the banks to maintain complex compliance details such as an audit trail of the entire transaction. Such complex requirements can be handled only by a competent technology. That is the reason why regtech is the new fintech.
Regtech is used by many associate partners in prevention of KYC and online frauds. For example, Fully verified for video verification of identity. In traditional KYC verification method, people can easily use fake identity documents. But regtech is useful is video verifying the identity of the customer using artificial intelligence. The recorded video will be available for future reference too.
The other areas in which Regtech helps are the following:
- Secured connectivity platform between asset managers and insurers
- Secured password storage
- Real-time monitoring of transactions to ensure anti-money laundering
- Prevention of online financial frauds
- Credit risk analysis and compliance reporting
Regtech serves as a common platform across multiple systems around the globe. Money laundering transactions and financing for terroristic activities cannot be traced easily since those involve funds transfer across multiple countries. Regtech comes as a rescuer in such a complicated scenario.
Another use of regtech is that it helps in tracking compliance regulations across the world. Financial institutions which work across the globe have different regulations in different countries of operation. Hence tracking the change in regulations makes compliance easier.