Today's RegTech Industry
Surveys show that there continues to be an appetite for RegTech within Asia:
With the COVID-19 pandemic, financial firms have stepped up their engagement with digital regulatory compliance providers. 68-67% of the firms surveyed by Thomson Reuters in their 2021 report use some form of RegTech to help cover and develop their risk and compliance functions. The survey participants included a range of firms, from start-ups to G-SIFIs in all sectors of the finance industry.
Survey results show that 15% of firms already invest in specialist skills for risk and compliance, with 24% who have not yet done so but know it is needed. 16% already implementing RegTech solutions, with another 34% that use RegTech but have not fully integrated their workflow with RegTech.
Firms are shifting from employing purely in-house solutions (from 17% in 2019 down to just 6% in 2020) and have turned to a combination of internal and external tools.
This is creating an exciting market for RegTech start-ups. The pandemic has increased reliance on technological solutions, with 79% of firms in Asia reporting that they have relied more on RegTech solutions, indicating a growing market for comprehensive solutions.
In other industry critical news, the RegTech industry itself is beginning to be regulated. The International Organisation for Standardization (ISO) and the International Organization of Securities Commissions (IOSC) have released overviews and guidelines for firms and governments to implement. While this has not reached Hong Kong, firms should pay close attention to any potential government action on these guidelines, as international clients will expect RegTech technologies to be deployable everywhere.
What can we expect this year? 2021 is expected to be a tight fiscal year for many of our customers, and this may tighten competition on the market. The main reason for firms (33%), when asked about their lack of engagement in RegTech was a lack of dedicated investment or budget. Other reasons include 1) lack of in-house skills; 2) lack of the culture of information security and data protection; and 3) poor IT infrastructure. 27% of firms say they do not have a specific budget for RegTech solutions. However, RegTech is a good cost-saving measure for firms when deployed intelligently. Firms are increasing or maintaining their budgets for RegTech solutions in 2021, and there is an increased interest in finding external RegTech solutions amongst companies.
The world economy is moving towards distinct spheres of influence, leading towards isolationist market protection policies. Firms looking to work internationally will have to navigate troubled waters. Chinese SOEs and private firms looking to expand into international markets, 90% of firms surveyed in a Deloitte study agree that minimizing risk is a top priority. This will likely involve compliance solutions, especially cost-effective methods like RegTech.
Compliance services will remain critical for those seeking to provide cross-border services in different jurisdictions, especially if policies are changing all the time