There is no doubt that regulatory compliance is an expensive business and that these costs continue to grow. In the UK, the projected annual cost of financial crime compliance alone is $49.5bn, whilst another study found that more than a third of financial services respondents said they would be spending more than 5% of their revenue on compliance. If this 5% figure is accurate, the annual cost of compliance for the UK’s top five banks50 (based on 2019 revenue figures) is around £5.2bn.
However, by improving the efficiency and effectiveness of regulatory and compliance processes, regtech also promises to deliver cost savings to financial institutions. Using the figures stated above, and applying a very conservative assumption that regtech could save at least 0.05% of total compliance costs, there would be an annual saving of £523 million ($720.8mn) for top banks in the UK (Barclays, HSBC, Lloyds, NatWest and Standard Chartered). Other benefits discussed in the report are: reduction in risk; improvements in efficiency and effectiveness; and enabling greater insights for decision making.
Regulators also see the potential of regtech, not only for the financial services industry but through its application to their own supervisory responsibilities, referred to as suptech. Some of the risks and challenges faced by regulators include: data quality and data standards as being prerequisites for effective implementations; cyber-risk and data security; increased dependency on third-party providers; attracting the skills and talent such as data scientists and engineers that also have regulatory and supervisory domain expertise; and challenges to cross-border data sharing due to localization measures.
The report presents empirical evidence gathered through quantitative and qualitative fieldwork, telling a story of an industry that has a desire to scale but needs to overcome complex network of challenges in order to do so.