Australia’s emerging RegTech scene could save FinTech from itself
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Australian one-hundred dollar and fifty dollar banknotes Photo Credit: Brendon Thorne/Bloomberg via Getty Images Israel

The pace of FinTech is moving so quickly that regulators are struggling to catch up. Australia’s RegTech sector may have some promising solutions to keep business flowing smoothly

Even as it falls under the wide umbrella of FinTech, the up and coming RegTech is quickly gaining traction as a niche startup category in its own right. Instead of focusing on the relationship between financial institutions and customers like FinTech, RegTech has arisen out of the need for banks to be able to deal with regulators directly to better and more cost-effectively navigate regulatory issues with the assistance of special purpose technology.
RegTech is primarily intended to help reduce the rising compliance costs associated with legislative requirements such as statutory reporting, anti-money/fraud laundering measures, customer risk, and responsible lending in an ever more regulated corporate world.

The typical means through which it achieves these compliance monitoring solutions is a combination of data analytics, risk modeling, blockchain and scenario analysis. One other particularly promising development is the use of Artificial Intelligence to predictively calculate risk.

Despite its relatively recent emergence, RegTech is even starting to make a dent in markets traditionally ranked as less innovative, such as Australia, a nation that is taking conscious steps to adopt the new approach and technology receptively in collaboration with entrepreneurs and regulators.

RegTech Around the World

Across the globe, RegTech is receiving the widespread attention of transnational bodies such as the International Organization of Securities Commissions, which has set up a working group to investigate the field. The Institute of International Finance has also recently released a report titled RegTech in financial services: Technology solutions for compliance and reporting. This paper outlines in detail key focus areas of RegTech and how to overcome the barriers facing the infant cadre of startups, stressing the need for legislation to be more accommodating of new technologies and to bridge the gap between RegTech ventures and regulators.

A large percentage of leading RegTech startups are produced in the UK and US. This perhaps reflects, to some extent, the increased uncertainty in the air after the Brexit vote in the UK, an event that was preceded by a national roundtable discussion on RegTech by the Financial Conduct Authority. In the United States, it is quite possible to have been prompted by the lasting implications of the global financial crisis that wrecked the markets in 2008.

It should also be noted that RegTech has been estimated by some observers to be worth over $100 billion globally. While this number may feel high for such a young sector, when accounting for the sum of collective fines issued to finance institutions for non-compliance totaling well over this figure, this valuation falls into the proper perspective.

FinTech speeding up the pace of business Image Credit: Ade Akinrujomu / Getty Images Israel

FinTech speeding up the pace of business Image Credit: Ade Akinrujomu / Getty Images Israel

RegTech developments in Australia

Despite its relatively small startup ecosystem, Australia is home to a number of rapidly growing RegTech startups, notably, Simple KYC and Red Marker.

Designed to manage supply chain risks, startup SimpleKYC aims to simplify and consolidate the client onboarding process and the heavy compliance requirements placed on businesses in this area by regulators. Red Marker also focuses on third party risk, ensuring compliance when financial planners communicate with clients, particularly via social media.

Image Credit: Smart KYC website

Image Credit: Smart KYC website

It also makes sense that regulators themselves would want and indeed need to become involved in the RegTech space. Responding to the increased activity in the area, the Australian Security and Stock Exchange Commission (ASIC) has established a dedicated team to look specifically at how to best manage and internally innovate around the intersection between regulation and technology.

This is complementary to ASIC’s proposed initiative of exempting new FinTech, and by association RegTech startups, from sandboxing licensing arrangements. This is currently open to the public submissions and is something that has the potential to allow startups to test their products without restrictive requirements, while allowing for sophisticated investors to access and in turn further these entrepreneurial efforts.

Other government departments are also jumping onboard with the Reserve Bank of Australia planning to roll out its New Payments Platform and the Australian Taxations Office’s anticipated introduction of a Single Touch Payroll system.

More generally, wider support from the federal government is apparent in treasurer Scott Morrison’s statement at a FinTech Conference in June, where he expressed his endorsement for the use of advanced technologies to improve financial industry regulatory issues.

Prime Minister Malcolm Turnbull (L) and Treasurer Scott Morrison (R) Photo Credit: Stefan Postles/Getty Images Israel)

Prime Minister Malcolm Turnbull (L) and Treasurer Scott Morrison (R) Photo Credit: Stefan Postles/Getty Images Israel)

Future growth

Although still in its early days, RegTech has demonstrated the capacity to streamline the bureaucratic and compliance processes that have long affected the public sector. With various reports expected to be delivered, including the ASIC sandboxing consultation paper, by the end of the year, how the sector will continue to develop in light of ever-growing regulatory compliance risks are certain to be worth following.

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Sam Taylor

About Sam Taylor


A law student and legal content writer, Sam has an avid interest in compliance, AgTech, innovation in law and the Australian startup scene generally. Reach out to him on LinkedIn.

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