As the compliance costs swelled in the latest years due to high volumes of regulatory change, financial institutions are fighting to ready themselves for the new reality. Facing the challenge, banks and financial firms are casting their eyes towards new powerful regulatory-focused technologies.
These digital tools are known as Regtech. They promise to help the industry cut costs by streamlining their compliance processes. And now financial firms have a sufficient list to choose from, although Regtech is a relevantly new phenomenon. According to Innovate Finance, in the early 2016 only 13 its member companies out of 175 identified themselves as Regtechs, while already by April 2017 Mark Beeston, the chief executive and founder of venture capital fund Illuminate Financial Management counted as many as 700.
As Jason Boud, an adviser to the Regtech sector and the co-founder of Regtech networking group the RegTech Forum, mentioned: "We're in wave one of Regtech, where people are jostling for position".
FN asked 25 Regtech founders, venture capitalists, compliance professionals, lawyers and other advisers which Regtech solutions had caught their attention, and which they expected to develop faster and prosper in this increasingly competitive sector.
The article by Financial regulation and Brexit correspondent Lucy McNulty lists 10 top Regtechs narrowed down by independent experts out of 79 initial companies participating in the research.
"Here is our list of 10 European Regtech companies worth keeping an eye on" – concludes the author. Among the ten Regtech firms selected are: Comply Advantage, Qumram, ClauseMatch, Suade, Fundapps, Sybenetix, Onfido, Alyne, Privitar, Digital Reasoning.
London-based anti-money laundering and sanctions database ComplyAdvantage, the first one in the list, was started as an opportunity to help friends, by an ex. JP Morgan banker, Charlie Delingpole, after he was being told that "compliance was making their lives a living hell". Since 2014 ComplyAdvantage now provides around 100 clients with proprietary data on their financial crime risks, a customer screening and monitoring platform as well as a transaction monitoring service to detect suspicious behaviour in real-time.
The second position is featuring Qumram, monitoring software, which helps financial services companies track their employees' conversations across a number of popular communications platforms, from encrypted instant messaging platforms such as WhatsApp and WeChat as well as business-oriented social network LinkedIn and multimedia communications platform Skype, and social networks with web interface. With 50 clients, including Swiss lender UBS and the US headquarters of asset manager Russell Investments, Qumram is described by one prominent adviser and investor in the regtech sector as a "Swiss success story now taking their story global".
The third line in the list is devoted to ClauseMatch, a London-based financial technology company which provides SaaS for smart document management. It says, ClauseMatch, well-regarded by investors, clients and even competitors in the space, literally "hits a need" in the back office according to the founder of another Regtech firm. It enables firms not only to collate and edit files, emails and documents on one platform, but crucially to keep an audit trail of any changes made to those documents. ClauseMatch is a 2016 graduate of Accenture FinTech Innovation Lab as well as a 2014 graduate company of Barclays' accelerator programme.
ClauseMatch is a 2016 graduate of Accenture FinTech Innovation Lab as well as a 2014 graduate company of Barclays' accelerator programme. In November 2016 the company signed a three-year contract with Barclays to help the bank streamline the creation and management of its compliance policies. In a statement announcing the launch Steven Burman, Barclays' global head of compliance operations and frameworks, said the ClauseMatch platform would enable it to manage "all of its global policies and standards more efficiently and effectively across the bank".
In November 2016 ClauseMatch signed a three-year contract with Barclays to help the bank streamline the creation and management of its compliance policies. Steven Burman, Barclays' global head of compliance operations and frameworks, in a statement announcing the launch of the platform, said ClauseMatch would enable it to manage "all of its global policies and standards more efficiently and effectively across the bank".
ClauseMatch is also working with a large European bank and has raised £1.25m in funding. One investor, who is not a backer of the company, said it was "on the forefront of regulatory change, policy and controls work".
The other companies on the list include Suade, a Regtech startup focused on prudential regulation stemming from Basel III and Mifid II. It provides products including a stress testing platform for capital requirements and scenario testing for liquidity management. Suade raised £150,000 in seed funding in 2015, and as its founder Diana Paredes noted, was "not looking at fundraising anytime soon in order to remain neutral".
Then the fifth line of the list is given to Fundapps, a Regtech with a speaking name. Fundapps with offices in London and New York, relatively a veteran among Regtech firms (est.2010). It provides clients with a suite of services, including cloud-based software to help fund managers ensure their portfolios are compliant with the ever-growing slew of regulatory requirements hitting their industry. Characterised by one investor as "addressing a critical trade reporting problem".
London-based Sybenetix provides compliance professionals at hedge funds, banks and asset managers with an AI-driven behavioural analytics platform that allows them to automatically analyse trades executed by their staff and flags up any suspicious activities based on unusual behaviour. One prominent investor in the Regtech sector said the firm was run by an "amazingly credible founding team" and had a "product that works with real customers".
Powered by machine-learning technology, Onfido allows financial services companies to comply with anti-corruption-driven Know Your Customer (KYC) checks and anti-money laundering rules more efficiently by automating identity verification processes on financial firms'prospective clients. Launched back in 2012 with seed funding of £200,000 from Oxford University's Saïd Business School, it has since raised more than $30m in funding from international venture capital firms including Idinvest Partners,Salesforce Ventures and Wellington Partners.
As explained by one Regtech adviser: "Security controls are a complex topic and require a lot of diligence and care to get right. Using Alyne's tool makes it a breeze." Alyne, founded in 2015 and subsequently graduating from Barclays' fintech accelerator programme earlier this year, helps firms handle their information technology security, operational risk management and IT governance by simplifying firms' ability to create and manage digital security controls. It provides its clients with social media-style tools for utilising its controls, as well as consulting services.
Privitar is helping its clients get ready for another new, sweeping set of European rules around data privacy, which is known as GDPR (General Data Protection Regulation). Starting from May 2018 it will see businesses charged hefty fines in case of data loss meant to remain confidential. Founded in 2015 by a former global business manager at Thomson Reuters, at the moment Privitar provides 11 firms, including several tier 1 banks, with software enabling them to anonymise data, and thereby to share and derive insights from such sensitive information in a manner that is compliant with the new GDPR regulations.
And closing the list of top ten Regtechs is Digital Reasoning, another firm dealing with financial institutions' need to track employee behaviour. It has created surveillance software that is used by the world's largest investment banks including Goldman Sachs and UBS as well as Steven Cohen's Point72 Asset Management, and monitors English conversations in six dialects including Scottish, British English, American English and South African. The software can monitor behavioural patterns by analysing millions of emails, chat logs and transcribed phone conversations to detect any suspicious and unlawful activity.