22 June 2022
- The United Kingdom and Ireland account for 41% of RegTech turnover worldwide, while the United States and Canada account for a third and Continental Europe for 17%
- The first RegTech White Paper aims to give visibility to the sector, analyse and study the regulatory frameworks, as well as proposals for improvement to address the regulatory difficulties faced by companies
- Financial institutions are required to submit regular information to the supervisor, so collaboration with RegTech, which offers process automation services to complete this information, can reduce human error and improve time and cost efficiency
MADRID, 22 JUNE 2022.- Regulation has become the great challenge arising from the digital transformation and the advent of new technologies in the financial sector. This is one of the main conclusions of the first RegTech White Paper in Spain, prepared by the Spanish Fintech and Insurtech Association (AEFI - Asociación Española de Fintech e Insurtech), with the collaboration of Cuatrecasas, the sponsorship of Cecabank and the support of AEFI members belonging to the RegTech and Onboarding Digital verticals.
The content of this white paper provides a perfect overview of the RegTech industry, from its origins to the national and international landscape, categorises all the business models that make up the industry, with the aim of finding new opportunities in this environment, and clarifies the regulatory framework on which RegTech is based.
Juan José Gutiérrez, Corporate Director of Technology Services at Cecabank, explains that "Cecabank as a leading provider of reporting and other trusted financial and technology services believes in the importance of collaboration with both financial institutions and other market stakeholders. Strategically, Cecabank believes that alliances with RegTech players can be an important factor that can help to anticipate the requirements set by new regulations in the financial industry and the analysis of the regulatory frameworks affecting this sector".
A qualitative leap after the pandemic
The RegTech ecosystem has grown exponentially in the wake of the Covid-19 health crisis, mainly driven by factors such as: 1) the rise of 20% of the digital use service channels for the financial services between the users, 2) a great management of risks of conduct of the users via the digital integration or 3) the boost of a greater transparency in the aspects of digital interaction.
The development of the industry has led to an exponential increase in turnover, from €6,000 million in 2020 to a projected €15,000 million by 2025. Currently, the United Kingdom and Ireland account for 41% of RegTech turnover worldwide, while the United States and Canada account for a third and Continental Europe for 17%. However, despite the growth and consolidation of the sector, the RegTech ecosystem faces a notable set of regulatory barriers to entry and obstacles to its evolution, given that RegTech solutions require a high degree of customisation and specific adaptation to the needs of each company, which implies certain timelines that hinder their implementation in an agile manner, as is the case with electronic signature systems, which require a period of analysis prior to implementation, for all users to become familiar with the process and for them to learn about their new obligations and responsibilities.
The digitalisation process faced by financial institutions has led to an avalanche of data relating to people, products, services and business processes, the management of which requires specific solutions adapted to the new circumstances of the sector. Traditionally, the main areas in the application of RegTech solutions are the prevention of Money Laundering, Trust and Electronic Evidence Services, Corporate Governance, Risk Management and Regulatory Compliance, Reporting, and other areas such as cybersecurity, fraud prevention, electronic communications, etc.
Rodrigo García de La Cruz, Chairman of AEFI, highlights among the challenges faced by entities in all RegTech verticals, "improving the low level of acceptance of electronic identification and trust services by institutions and addressing the development of operational and agile technological solutions that respond to the needs of the markets".
The importance of supervisors
One of the key elements of the supervisory work of the regulatory authorities is the information that institutions periodically submit to them regarding their activity, financial situation and customers. This requirement for regular reporting to supervisors has been the subject of particular development in the aftermath of the 2008 financial crisis, as one of the weaknesses identified in the context of that crisis was the lack of complete and up-to-date information on important aspects of supervisory institutions (e.g. their levels of risk exposure, liquidity or leverage). Miguel Sánchez Monjo and Héctor Bros, partners at Cuatrecasas, explain that "today, financial institutions are faced with periodic reporting obligations of all kinds to their supervisor of reference and this is where RegTech firms offer process automation services to complete this information, avoiding human errors when transferring information from the institution to the reporting templates and improving efficiency in terms of time and cost". RegTech firms offer services not only to complete forms and information sheets, but also to upload information in the formats required by the supervisor and to integrate technology to ensure the correct and timely delivery of information.
At the regulatory level, the volume of periodic information that credit institutions must submit to the European Central Bank and the Bank of Spain on aspects related to their financial situation and activity is of particular note, while in the area of CNMV oversight, of particular importance are the periodic reporting obligations that must be submitted by investment services companies, fund managers of collective investment institutions, venture capital firms and closed-end collective investment institutions, while with regard to the prevention of money laundering and the fight against the financing of terrorism, there are ongoing reporting obligations to SEPBLAC.
United Kingdom and Ireland, precursor markets
The United States and the United Kingdom were pioneers in the implementation of RegTech, although in recent years a favourable regulatory climate has been fostered in Spain for the emergence or consolidation of new start-ups geared towards the provision of these services and for the transformation or diversification of many existing companies towards RegTech. In fact, some of the main players in the Spanish market emerged as spin-offs from the banking or insurance sector, or mutated from the provision of other kinds of electronic services into the field of RegTech services.
| URGENT MEASURES
1. Creation of a Committee of Experts to work on the future Spanish adaptation to the new digital identification paradigm that the EU is considering following the publication of the proposal for a Regulation (EU) on the new framework for European Digital Identification. (important) 2. Enabling greater channels of communication with supervisory bodies, in order to allow for consultation and a more fluid dialogue. This measure should aim to improve the level of publications relating to the criteria of supervisors and to increase channels, guidelines and directives to establish a unified body. In addition, it will contribute to the availability, quality, updating and unification of public databases accessible to RegTech (e.g. beneficial ownership and credit or default status). 3. Possibility of verification of video-identification systems or other mechanisms offering equivalent security to face-to-face identification by SEPBLAC at the design stage and prior to their implementation in the different institutions. (4-digit) Outline and institutionally promote a National Digital Trust Strategy to encourage the use of electronic trust services. 5. Institutional monitoring by the reference body of the compliance by the bound parties with the requirements to use certain systems for the authentication of the identity of their customers. 6. Unify the requirements authorised by SEPBLAC in 2016 for video-identification in non-face-to-face transactions in the context of compliance with money laundering regulations to the requirements set out in Ministerial Order ETD/465/2021 of 6 May. 7. Implement technological infrastructures by supervisory authorities that facilitate the work of RegTech firms where communication via integration or IT API is necessary. |
In Spain, moreover, particular mention should be made of the proliferation in recent years of start-ups geared towards offering the market electronic signature systems or the sending of certified communications that guarantee the integrity and origin of transactions or the verification and authentication of people's identities by electronic means, the so-called electronic trust services.
