My prediction is that RegTech developments will certainly be closely watched by like-minded entrepreneurs, B2B focussed investors and regulated companies. The open question remains, who will actually emerge as relevant in the RegTech space in 2016 and why. I believe there are five promises a relevant RegTech company will have to keep in order to justify the current attention in this area.
1. Drive Significant Cost Reduction
No one has any misconceptions that any new piece of regulation creates cost for the regulated organisations. Banks have hundreds or thousands of people working on meeting regulatory requirements and managing associated risk, providing huge potential for cost savings. Therefore, a relevant RegTech solution can address one of two areas. It can either provide its customers with significant cost savings by commoditising more of the compliance process and delivering automation to areas currently dominated by spreadsheets and manual data entry. Or alternatively, it can replace an existing compliance functionality that is expensive to procure or operate, such as old school GRC software or external subject matter experts. This also means that RegTech solutions need to be significantly cheaper than any current solution in fulfilling an existing or imminent need.
2. Keep ahead of the game
In many major economies around the world, significant regulatory influences and changes are expected in 2016, like implementing the German IT Security law, mandatory breach notification in Australia, new Cyber Security requirements for banks in New York and of course preparations for the EU General Data Protection Regulation. To be relevant, RegTech will need to establish thought leadership around solutions to these challenges ahead of conventional stakeholders (such as consultancies, audit firms, law firms). RegTech solutions must anticipate global regulation trends and shape the conversation on responding to compliance challenges. The UK’s FCA is currently providing companies an excellent opportunity to do so by calling for input on the future of RegTech.
3. Be relevant to big and small
RegTech companies must be B2B models by definition of the term, as RegTech solutions are intended for regulated businesses. The “tech” component of the term also implies using technology to create highly scalable business models. In order to be relevant in both the “reg” and “tech” aspects of RegTech, I believe solutions need to address a business customer base as large as possible. Niche solutions to a niche regulation will not lead to a relevant RegTech business. With companies of all industries and sizes embracing digitalisation and leveraging more mature cloud strategies, there has never been a better time to deliver a highly scalable compliance capability to both small and large organisations.
4. Appeal to users beyond conventional stakeholders
There are some key reasons a relevant RegTech must extend to a broader user base within an organisation than just conventional compliance stakeholders. From a customer perspective, major value creation and opportunity for efficiency gains lie in technology solutions that can further a compliance stakeholder’s interests throughout the organisation. A more effective way of measuring current compliance than on-site audits is a good example.
From a RegTech business’ perspective, a tool is more relevant to the organisation, when more people use it on a regular basis. The more end users, the stronger the monetisation of usage is possible.
5. Actually deliver a product to market
A few days ago I was reading a blog post listing the hottest RegTech companies supposedly defining the industry. I am sure there are some companies on that list that might become relevant RegTech companies in the next months, however a large number of them currently don’t have a product on the market. RegTech companies - including Alyne - have yet to prove relevance through a viable product and much of the attention given to RegTech still has a high degree of aspiration attached. The team at Alyne is working incredibly hard to bring Alyne to the market in the next few weeks and we all look forward to learning what RegTech has the potential to disrupt the status quo and develop a strong, scalable and successful business.