Financial institutions blocking regtech progress despite new regulatory efforts, analyst warns

Increased regulatory endeavours to acknowledge the growing regtech industry will fall flat if investment banks and other financial players keep shunning the market, according to Juniper Research’s lead analyst Nick Maynard.

The analyst voiced scepticism that recent moves by the European Banking Authority (EBA) to work on possible regtech guidance could foster growth in the sector in the absence of more positive signals from financial firms.

“While the EBA can improve its stance of regtech and make it somewhat easier to adopt, this will have a marginal effect on the industry,” he said.

“Ultimately, the EBA report […] highlights that regulatory frameworks can be harmonised to stimulate greater [regtech] use, but it identified problems such as data quality, integrating with legacy systems and awareness as the biggest issues.”

Reflecting a growing sense of importance for the sector, the regtech report published by the EU banking watchdog last week referenced enhanced risk management, better monitoring and sampling capabilities, and reduced human errors as the main advantages.

However, the report also highlighted various barriers to the progression of regtech in finance, citing internal legacy technology systems within financial institutions in particular for causing hurdles and risks. Poor awareness and understanding of regtech solutions was also highlighted, while the lack of common regulatory standards across different EU member states could pose challenges in the future as the sector grows, the paper said.

The EBA mentioned three key practical steps forward: To deepen knowledge around regtech solutions for both regulators and financial institutions, to harmonise the legal and regulatory framework, and to further encourage the use of innovation hubs for testing purposes.

While Maynard remained doubtful, stronger engagement from regulators could be the signal financial firms were waiting for to move more decidedly into the regtech space.

Research by data company Duco found that 46 percent of financial services organisations would, for example, invest more in data automation if they were sure it reduced the risk of non-compliance with regulation and associated fines – suggesting that regulators’ role in streamlining the uses of regtech could be pivotal for the sector’s growth.

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