According to a recent report by Reports and Data, the global RegTech market is expected to reach USD 21.73 Billion by 2027. RegTech is beneficial in helping financial institutions in the management of regulatory processes within the financial industry through technology. Various challenges faced by financial institutions in risk management and RegTech, by way of digitization and automation, delivers an economical solution to resolve such challenges and comply with the regulatory standards. It assists financial institutions in the collection of data and automatic generation of reports in accordance with the format and schedule mandated by numerous regulatory bodies. Moreover, it reinforces the regulatory and supervisory capability of the regulators by making effective use of data in a unified format to supervise the rapid developments in the sector.
Increasing demand for RegTech, owing to looming regulatory burden, is a vital factor in driving the market growth. According to the study, the cost of compliance across all banks from 2014 to 2016 averaged approximately 7.0% of their noninterest expenses. This regulatory burden was much larger for smaller banks with assets below USD 100.0 million, and the cost of compliance averaged about 10.0%. In contrast, expenses for banks with assets of USD 1.00 billion to USD 10.0 billion averaged a little above 5.0%.
Additionally, increased funding for RegTech is an instrumental factor in boosting market demand As the FinTech industry of India get regulated with newer laws, the funding into the RegTech startup witnessing an increase. The private funding into the RegTech industry in India surged by more than five times at USD 43.5 million in 2019 as compared to USD 7.3 million in 2018. A few of the top-funded Indian RegTech startups include CrediWatch, Simility, Fintellix, and Digio, among others. Besides, investments in Fintech firms and startups worldwide increased more two-fold to USD 15.00 billion in 2017, whereas in 2018, it was USD 31.00 billion, which in turn, is driving the growth of the market.
The deployment of information technology in financial institutions to cater to tighter regulatory standards is poised to continue to grow in the current year. Even though, owing to the uncertainty about COVID-19, the adaption rate is very much unclear. Financial institutions may have to struggle while emphasizing on the immediate effect of the pandemic. While several firms have ascertained significant limitations to their existing processes, owing to a combination of lesser staff and staff forced work from home, the sales life cycle gets longer due to reduced business activities i.e., even though there is a stronger traction for RegTech solutions, the purchase, and implementation of such technology are much longer processes for a majority of the firms.