The REGTECH Book

RegTech is for Regulators Too, and its Future is in Emerging Markets

By Matthew Homer¹ and Mackenzie Wallace²

¹Affiliate, Cambridge Center for Alternative Finance

²Director, ZestFinance

RegTech companies continue to emerge at a strong pace, but most of these companies are focused on helping financial institutions comply with regulation, rather than retooling the regulators themselves. This is understandable. Financial institutions represent a more substantial initial market opportunity and have several benefits over regulators, including that there are many more of them, they are hungry to reduce compliance costs, and many have already set up platforms for engaging with innovators.

Regulators Are Starting to Innovate as Well

However, regulators are also starting to innovate. When we consider regulation as a life cycle, spanning from the licensing process to ongoing oversight and enforcement, we already see significant attention focused on reinventing the first part of the life cycle. This is where regulators engage with organizations that want to receive a license, as well as the licensing process itself. New product development by existing institutions could also fit here.

For example, we see a constant drumbeat of interest in regulatory sandboxes, with dozens of countries considering this and other test-and-learn approaches. These approaches have the potential to support innovation and new market entrants in well-defined settings that reduce risks, such as the risk of ...