An Insider’s Look at RegTech

An Insider’s Look at RegTech

Many who are knowledgeable about Know-Your-Customer (KYC) and Anti-Money Laundering (AML) come from a financial institution background.  They have a keen awareness of the challenges in maintaining high standards of compliance.  These requirements apply not only to banks but also to companies and platforms that partner with credit unions and financial institutions.  RegTech (Regulatory Technology) is the modern bridge between entities operating in financial services and the evolving regulatory landscape.   In this post,  Mykola Mashkovskyi (CEO of KYCAID) provides a deep overview of the sector, its tech origins, advantages & opportunities, and use cases.


RegTech emerged in response to the growing concern of security and regulatory requirements within the financial services industry, and how this can be addressed with technology. At a high level there are two components:

  • Data protection and transparency of all business processes;
  • Change in these business processes and their complete automation;

RegTech aims to remove the need for manual review and human error by incorporating algorithms.  Through artificial intelligence and Big Data, financial institutions can comply with mandatory requirements, operate quickly and efficiently,  and produce top results at a lower cost.  The benefits of RegTech impact audits, real-time risk monitoring, and fraud prevention — are all key areas that proactively minimize financial losses.

The main features of regulatory technology (in conjunction with ALM or Application Lifecycle Management systems):

  1. Reporting. This area becomes automated —  how the organization adheres to the applicable laws is improved;
  2. Potential risk management. Continuous monitoring online allows the program to determine what unforeseen situations may come and helps managers make decisions quickly based on data;
  3. Verification. This includes verification of users, new customers, and databases for illegal activity — all taking place automatically. Through robust level Know Your Customer (KYC) checkpoints, a bank (or other company) can check potential customers before they transact. Video verification may provide an additional resource to avoid cases of fraud;
  4. Transaction monitoring.  Similarly, all high-value transactions are closely analyzed to prevent money laundering or terrorist financing;

These features combine to create a higher level of trust and confidence when working with certain banks and organizations — from a user and regulator perspective.

For platforms that provide banking services, RegTech provides a path to following regulatory trends, adhering to new guidelines, improving security practices, and reducing the risk of cyber fraud.   The number of regulatory requirements and regulations continues to increase each year. To effectively follow changes and not lose productivity, modern tech is needed. Business process automation and machine learning are shaping the future of financial systems.


Regulatory technologies first emerged at the beginning of the Financial Crisis in 2008 in response to poor oversight of financial institutions. It wasn’t until 2016 that the concept became formalized. At this time, IBM acquired Promontory — a company that specializes in risk management and automation of regulatory requirements and processes.

With the level of oversight increasing post-Financial Crisis, the standards and cost to stay compliant were higher.   Outside counsel needed to be hired to support existing legal teams overwhelmed with new requirements.  Failure to meet these new standards could mean penalties and fines.

To maintain control, a more robust system was needed by financial institutions built on modern technology. The early focus of RegTech prioritized fast communication between the organization and the regulator.  This line of sight benefited regulators as well since their focus on auditing accounts and improving security became easier.

The core driver for regulatory technology was in solving critical tasks with minimal resources or “heavy lifting.”  RegTech automated labor-intensive processes, added a simplified interface and intuitive navigation, processed massive amounts of data, and accomplished a set of operating tasks — all in an efficient manner.  Amendments to laws could immediately be uploaded and reviewed in a system, providing new results on adherence.  The fear of missing a regulatory requirement or suffering a penalty subsided.


Here’s a list of the advantages of RegTech:

  1. Improved reporting. The data analytics used by RegTech allows for reporting in real-time. The analysis is carried out at several levels simultaneously: possible errors, user interactions, and checking for errors in the system;
  2. Improved efficiency. Large amounts of data are processed by the system, not by humans. It also minimizes the possibility of errors;
  3. Forecast. Based on the data from previous failures, the system calculates the possibility of new problems in the future — the latest decisions become more accurate and effective;
  4. Fight against fraudsters. Online monitoring of sanctions and suspicious transactions helps identify or prevent illegal activity.

The main disadvantages of RegTech include the cost of these solutions for the business and the lack of qualified personnel, which can work with such a system. If the company has a poorly developed IT structure, there is not enough investment, or the data protection system is not reliable enough, then they need to solve these problems before introducing Regulatory Technology.  Such a system requires human resources, and must also be backed up by computer software that will withstand the load and will work without interruptions. The IT department must be trained to quickly solve the problem in an unforeseen situation without disrupting the usual rhythm of activity.

Regulatory Technology is suitable for large companies that want to stay on the market for a long time and not be inferior to competitors. RegTech is the ability to respond to changes quickly.


Here are the main categories for applying RegTech:

  1. Compliance with regulations. The core component of RegTech. The cost savings and access to online reports also come with the visualization of raw data and monitoring of new rules & laws;
  2. Identity management. This involves verifying the identity of all customers & partners. The system checks for solvency, legal filings on individuals and beneficial owners, and partnership risks;
  3. Risk management: RegTech helps forecast based on the analysis of previous experience and monitoring in real-time;
  4. Monitoring of financial transactions to deter illegal financing of organizations or money laundering;
  5. Data security: includes the storage of large amounts of information, processing, and protection.

With an integrated approach, financial institutions or other companies can run a profitable business, serve a large number of clients, and become more reliable.


Financial services (and embedded finance) firms face many challenges when it comes to compliance and managing risk.  RegTech helps manage these components but still requires a thoughtful, clear approach in terms of implementation.  

A few points to clarify:

Does your company have a clear idea of this technology, its advantages, and disadvantages?

● Does your company understand precisely how regtech will help your business?

● Implementation cost and possible additional costs;

● A clear plan of action for implementation: identify potential problems and ways to solve them;

It’s helpful to start off by highlighting the list of pain points your company needs to solve. With this list, explore potential providers' documentation and a trial/testing period.  Testing can show the weaknesses of systems, what’s needed to be improved, and processes that can’t be automated. Every organization has unique needs and processes — a cookie-cutter, one-size-fits-all approach is not the best.


RegTech is in constant development since 2007, expanding beyond financial institutions and banking sectors.  The push for further simplification, automation, and standardization will only intensify. With the advent of new laws and requirements, more innovation will be needed to reduce regulatory complexity. Crypto, Defi, Web3, gaming, and other emerging sectors will also have compliance needs.  Only the firms ready to implement new systems will be able to meet regulatory standards and scale operations.