Craig Dempsey is the CEO and Co-Founder of Biz Latin Hub, a firm that helps both local and foreign companies establish and operate their businesses successfully in Latin America through a full suite of back office services. Before becoming a business owner and entrepreneur, Craig served as an Australian military officer. He is a professional mechanical engineer and holds a Master’s Degree in Project Management from the University of New South Wales.
Since the 2008 financial crisis, the regulation of financial entities has increased significantly. In response, many financial firms have increased their compliance staff. However, the rapid pace of change in regulations makes it difficult for companies to rely on traditional methods to meet new standards cost-effectively. This is where regtech comes in. Regtech, or regulatory technology, is a subsection of the financial technology sector that helps financial institutions and corporations keep up with changing regulations and ensure proper reporting and compliance.
Regtech employs technologies like artificial intelligence, big data analytics, blockchain, and cloud-based services to help financial entities identify, interpret, and comply with new regulations, as well as increase transparency and manage risk. By automating complicated processes, companies can better monitor risk factors, reduce human error, cut costs, and react more quickly to the quick-shifting scene of financial regulation, giving them a significant competitive advantage.
For example, big data analytics allow financial institutions to optimize their data internally, providing valuable insights that can shape future predictions and strategies. Meanwhile, cloud services expand internal access to data and adaptability by decentralizing access to information and technology. In short, regtech can give companies a significant competitive advantage by reducing costs, improving flexibility, and increasing process efficiency.
The demand for regtech is on the rise worldwide. In 2017, global spending on regtech reached $10.7 billion, and that number is predicted to increase to $76 billion by 2022. Europe produced the highest volume of new regulations in the last five years, and as a result, became the leading regtech region. However, it’s worth noting regtech’s rise in other regions around the world, specifically in Latin America, where fintech activity is growing expeditiously.
RegTech on the rise in Latin America
Latin America has a rapidly growing fintech scene. According to the IADB, there are over 700 active fintech startups in the region, and that number continues to grow. An increased global focus on financial regulation has affected Latin America particularly, and its vulnerability makes it an ideal market for regtech solutions that target both established and developing financial entities.
Within Latin America, approximately 70% of the population is “unbanked,” or without a bank account, primarily due to a lack of trust in financial institutions and strong informal economies. In addition, complex and regularly-changing Know Your Customer (KYC) regulations create barriers to incorporating new clients and expanding access to formal financial services. New developments in regtech, however, offer solutions. Since 2014, the Global Legal Entity Identifier (LEI), a massive global database of contact information, has helped financial entities comply with KYC regulations by providing the required data without incurring the cost of obtaining and managing it.
click here to read more on how Latin America ushers in the new era of compliance.