Regulatory Technology (RegTech) refers to technology-based services which assist organizations with their regulatory compliance obligations, whereby these services generally leverage cloud computing solutions and are delivered through the Software as a Service (SaaS) distribution model. In the short span of four years, RegTech has risen from almost total obscurity to being heralded as the “new Fintech”.
The rise of RegTech highlights the dire need for technological assistance to support organizations in their regulatory compliance efforts. Globally, regulatory compliance obligations cost financial institutions between US$60 million to US$350 million annually. Compliance spending must be weighed against the firm’s potential fines for non-compliance, the risk of damage to the brand, or in the worst-case scenario, a shutdown order.
In the case of fines, banks around the world have reportedly paid a colossal US$321 billion in penalties since the 2008 financial crisis. To top it all off, financial institutions must deal with a complex web of ever-changing regulations.
In the first six months of 2018 alone, the RegTech industry received a massive US$1.37 billion worth of investment. Fast forward to 2019, and RegTech is expected to undergo far-reaching disruption, with blockchain expected to take RegTech to the next level of developmental growth and industrial application. Going forward, blockchain is expected to be deployed in the RegTech domain to support the automation of due diligence screening, streamlining of AML (anti-money laundering) checks, and the use of social media as well as personal biometrics for KYC (Know-Your-Customer) verification.
Although the potential for blockchain-based RegTech spans all areas of regulatory compliance, financial institutions such as banks and insurance providers stand to gain the most from the use of blockchain-based RegTech. These institutions are obliged to comply with cumbersome AML and KYC compliance obligations, both of which entail similar operational issues. AML obligations involve extensive documentation collation and validation, whereas KYC obligations require repetitive information collection and verification.
In this regard, blockchain address these pain points, as the distributed ledger technology enables the document collation and information collection processes for AML and KYC, respectively, to be automated. Additionally, the immutable nature of blockchain-based records grants immediate validation to the documents collated for AML reporting purposes and speedy verification of the information collected for KYC obligations.
US Founding Father Benjamin Franklin once said, “In this world, nothing can be said to be certain, except death and taxes.”
Almost all organizations, save for a select few such as charities and religious institutions, are subject to the taxation laws of the relevant jurisdictions in which they operate. In this area, blockchain-based RegTech offers a handy tool to businesses in their efforts to comply with tax-related obligations. Blockchain data processing enables the automation of the recordkeeping process, thereby optimizing human resource management for these organizations. The immutable nature of private distributed ledgers ensures the accuracy of its records, thereby allowing the ledgers to be used as supporting documents for the returns filed by the organizations with the relevant tax authorities.
Regulatory complexity is an unavoidable necessity, given the conditions of the modern world. Nonetheless, blockchain-based RegTech can ensure that regulatory compliance won’t paralyze business organizations, especially financial institutions.
Follow Asia Blockchain Review on:
We provide information about Asia Blockchain Review latest activities as well as global blockchain news and research. Subscribe to our Newsletter now or Contact us