Regtech: Juniper Research Reveals that Safe Digital Onboarding will be Key Focus of Regulatory Tech

Juniper Research recently published a report titled, “The Role of Regtech in a Post-Pandemic World.”

Juniper Research notes that during the past few years, the concept of Regtech or regulatory technology has taken on a lot of importance within the financial services sector and in other areas as well.

During the Coronavirus crisis, regulatory compliance has become a lot more complicated, which has led to Regtech becoming a “highly dynamic and rapidly evolving area,” the report added.

As noted by the Juniper team, the UK Financial Conduct Authority defines Regtech as “a subset of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities.”

But Juniper believes that Regtech will also serve an important role in areas other than financial services, “as highly regulated verticals seek to ease their compliance burdens.”

Digital onboarding and how to onboard customers remotely in a safe, user-friendly manner that adhere to KYC guidelines has become critical during COVID, Juniper added, while noting that they expect that this trend will “remain at the centre of the Regtech market.”

Juniper added:

“Ultimately, the current regulatory landscape in financial services is still largely what was put into place following the 2008 financial crisis. However, these regulations are constantly being amended and revised to reflect social, cultural, political and technological changes in the regulatory environment.” 

In the US, the Trump Administration had reduced the scope of various banking regulatory guidelines such as Dodd-Frank. There have also been updated regulations, with the launch of the 5MLD (Fifth Money Laundering Directive) in the European Union (last year).

Despite these updates, it’s clear that the regulatory “burden” is “not loosening” on banking platforms and other financial institutions, Juniper claims. They pointed out that the “stakes are also very high, with fines proving very costly to the industry.” Last year, regulatory agencies reportedly issued $10 billion in AML fines, which is a 26% increase from 2019, with the United States, Malaysia, Australia, Sweden and the United Kingdom leading fines issued in terms of value.

Juniper’s paper added:

“With an average of 10%–15% of staff dedicated to compliance, as of 2020, banks globally are spending in excess of $287 billion per year on compliance and regulatory obligations, with no anticipated relaxation of regulatory rigour anticipated in the near future. For highly regulated businesses, regulatory compliance is not optional; having the most effective regulatory compliance strategy is a basic requirement. What businesses must decide is the most effective way to complete these requirements, which is increasingly becoming an argument of which technological solutions to deploy.”

The paper also noted that overall spending on Regtech is on track to surpass $130 billion in 2025 (up considerably from $33 billion in 2020). This considerable 290% growth is being “fuelled by greater use of AI to automate highly manual tasks, and the transition to digital onboarding, which have emerged as critical capabilities in the wake of the pandemic.”

The Juniper report pointed out that Regtech vendors need to make AI a key part of their solutions, while also leveraging human intelligence to “keep their decisions fully explainable.”

The report continued:

“AI’s capabilities in automating manual tasks will allow businesses to begin to improve their levels of spending on regulatory compliance.”

Almost 330 million new bank accounts will be “opened via digital onboarding in 2025, from 184 million in 2020,” the report estimated.

It added:

“Ultimately, consumers will continue to use digital onboarding in ever-greater numbers and, as such, vendors must design long-term strategies that support this. Almost 18% of banking digital onboarding in 2025 globally will use AI systems, compared to under 4% in 2020.” 

Juniper noted that AI in key areas such as ID verification means that companies or businesses can move from their manual processes to an all-digital KYC model. According to Juniper Research, this should offer considerable cost savings of more than $460 million in “banking onboarding alone, and will also provide a significantly improved user experience.”

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