Tuesday, November 5, 2019 Stamford, CT USA — Financial service firms are increasingly reliant on technology to keep them out of trouble. Financial companies spent more than $1 billion on third-party trade surveillance technology in 2018, as they invested heavily in “regtech” solutions for anti-money laundering (AML), know your customer (KYC) and other functions. That spending is on track to continue—or even accelerate—given that a steady 25% of financial service firms name “insufficient technology infrastructure” as their biggest near-term regulatory challenge. 

This data is from the Nasdaq and Greenwich Associates 2019 Global Compliance Study. Following a tumultuous decade of scrambling to meet new regulatory and compliance standards imposed in the wake of the global financial crisis, the 187 compliance professionals participating in the study report they are finally able to focus on longer-term planning and adopt a more proactive approach to developing compliance strategies. At the core of those strategies is technology. 

“Demand for new data sources and technology innovations is driving the evolution of compliance,” says Danielle Tierney, Senior Advisor for Greenwich Associates Market Structure and Technology and author of Hooked: Regtech Reliance in Capital Markets Compliance.

Trade Surveillance Driving Regtech Demand
The compliance technology in highest demand is trade surveillance, which is consistently cited as a top investment priority by at least 60% of financial service firms. Compliance staff and regulatory expertise rank No. 2 and No. 3 as investment priorities.

In addition to trade surveillance, AML and KYC, financial service firms are deploying regtech applications in communications monitoring, employee trade compliance and other compliance areas, with usage expected to continue expanding as compliance budgets allow. 

This demand has triggered rapid growth in the regtech industry, where a vast array of new entrants, including startups and existing venders looking to extend their capabilities is emerging to compete with the small number of incumbent vendors with leading market share. 

“One trend to watch in regtech is the increasing utilization of automated solutions in previously manual processes, such as regulatory change management and noncompliance issue tracking,” says Dan Connell, Greenwich Associates Managing Director.