The Global RegTech market is estimated to be worth $7 billion in 2021 and is expected to reach $15.8 billion by 2026. However, research commissioned by the City of London Corporation found that more could be done to support the RegTech sector to grow and thrive and strengthen London’s competitive offer.
The research identified that there are key factors promoting the growth of the RegTech market including a rise in the number of fraudulent activities, such as money laundering, that is leading to an increased need for risk and compliance management. Nevertheless, the industry faces restraints to growth including the high cost of software, the divergence of global regulations and a lack of technical knowledge about the software available.
However, most RegTechs are optimistic about their future commercial performance as it is forecast that RegTech spending will top $76bn in 2022, according to a report by KPMG. It is also expected that RegTech’s predicted share of all global regulatory spending will reach 34% next year which is a dramatic increase from just 4.8% 2017.
The pandemic stressed the need for financial institutions to address structural challenges, such as remote working, to make risk management processes more efficient. Changes to working conditions, as a result of COVID-19, will likely remain an active driver for investment. Other trends to watch for include updated ESG risk regulations, increasing materiality of data privacy, KYC and transparency and RegTech’s ability to measure and model new risk types such as climate change risk.
Plug and Play recently identified 5 RegTech start-ups that are reshaping the finance industry through innovative solutions to support financial institutions with compliance:
ComplyAdvantage, an award-winning AML data and technology company that offers AI-driven financial crime risk data and detection. In May 2021, the company extended their Series C round to $70 million with new investment from Goldman Sachs. “Financial services innovation is the catalyst for massive business transformation. Companies need a hyper-scale AML and risk solution as a financial crime deterrent,” said Charles Delingpole, founder and CEO of ComplyAdvantage.
Paragon Data Labs (PDL), a next-generation start-up that develops cloud-based enterprise software solutions to streamline critical operations of financial services firms. PDL announced its first round of angel investors in early 2021 as the co-founders sought to accelerate the rate of change and innovation in the compliance technology space, which has been notoriously slow to evolve. The innovative venture has attracted support from an accomplished group of angel investors who will also serve as a strategic advisory council to accelerate PDL’s growth.
Regulativ.ai, offering solutions to transform cyber security regulatory compliance functions and to make them more efficient through automation. Regulativ.ai recently partnered with Birlasoft to co-develop a new AI/AML-based cyber-regulatory reporting platform. The joint venture saw Biralsoft’s shares jump 12% earlier in the year. The co-developed platform will help regulated enterprises gain a deeper understanding of their cyber regulatory compliance risks and provide them with actionable reports to mitigate risks and ensure compliance. The stock price of the global enterprise digital and IT services company rallied 68%, reporting a 43.3% rise in consolidated net profit with continued momentum expected for FY22.
ClauseMatch, providing policy and regulatory change management, and a compliance platform that automates tasks. ClauseMatch secured a $2.5 million loan package with Silicon Valley Bank in 2019 to support the company’s global growth. Since then, ClauseMatch has opened a New York office, started a Policy Portal and launched its compliance management programme. The company boasts clients such as Barclays and PensionBee to support and streamline their internal policies and controls.
Apiax, a Swiss RegTech start-up that builds and offers tools to transform complex financial regulations into digital compliance rules. Apiax secured $1.5 million in its initial seed funding in 2017 and the following year released a new RegTech tax product. Apiax continued to see growth, opening a London office and securing a further $6.6 million in Series A funding in 2019. In early 2021, the company also raised fresh capital to enter the German market. Benjamin Krahmer, Managing Director of Futury, said: “The Apiax team combines technical expertise with regulatory know-how and entrepreneurial spirit. Apiax has created an excellent basis for further growth with its existing clients, partnerships and projects. We look forward to working with the team and the founders.”
