The AI in Regtech Market is forecast to reach $3.3 billion by 2026, growing at a CAGR of 36.1% from 2021 to 2026. The market will be driven by the ability of artificial intelligence to improve data governance, business risk, and regulatory compliance. The global Regtech market is expected to grow to the CAGR of 48% by 2018-2020. Leading banks HSBC, Deutsche Bank and JP Morgan spends over $ 1 billion annually on Regtech. Banks are switching to be data driven company that is the biggest driving force to adopt Regtech along with AI. Regtech is not dealing with regulatory obligation effectively but also reduce the associated cost and risk.
AI in Regtech Market Segment Analysis – By Application
Regulatory Compliance has dominated the AI in Regtech Market as compared to the other applications due to significant demand in regulatory technology to help financial institutions address risk management and regulatory compliance. Artificial intelligence are now deployed in Regtech too. AI can be used to automate the information and news discovery for KYC requirements onboarding, event driven refresh and remediation. By using customer’s internal policies, AI automatically constructs corporate ownership structures, discovers beneficial owners, and in minutes filters all relevant entities and persons for regulatory, reputational and financial risk. AI can monitor traders and understand their behavior and raises alarm when they perform something out of character. AI is playing major role by quickly assessing the large algorithms to protect from fraudulent cases. AI is used in modelling, scenario analysis and forecasting, particularly “stress test”.
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AI in Regtech Market Segment Analysis – By Business Model
Artificial intelligence and machine learning provide many opportunities when applied to regtech compliance. Eg. Data mining algorithms based on machine learning can organise and analyze large data sets, even if they are of low quality. Machine learning improves the interpretation of low quality data outputs from payment systems. It can create risk models and self- improving methods for data analytics, modelling as required for stress testing. The best example of machine learning in Regtech is Algo Dynamix, which uses adaptive algorithms to find disruptions in finance. The analytics engine of the company uses primary data sources and machine learning to ward off trade fraud. This method helps the customer to detect any suspicious activity during financial instrument shifts. It can also predict about price movements. There has been a noticeable shift to reinforced and supervised learning in recent years to enhance the AI solutions.
AI in Regtech Market Segment Analysis – By Geography
North America will dominate the Artificial Intelligence Market in Regtech during the forecast period and has a share of 46% in 2020. It is expected to significantly surpass Europe and Asia Pacific when it comes to spending in regulatory software in the next five years. 35% of the software spending is seen in Asia Pacific at present. AI acts as a bridge between the Regtech startups, regulatory bodies, and financial organisations. Since the compliance processes need collection and aggregation of huge amount of data, the Regtech startups in North America are helping banks to utilize this data from artificial intelligence.
AI in Regtech Market Drivers
Technological Advancement driving new applications
Regtech sectors are innovating their products with the help of AI technology. Work Fusion provides intelligent automation software that has all the capabilities enterprise leaders need to digitize business processes. The robotic process automation tools and AI are used to automate systems to record and store data. Onfido runs a program which performs background checks to verify people. AI algorithms are used to match a photo based identity document with a selfie. Text IQ uses artificial intelligence to protect its clients against from compliance disasters. Big analytics data is used by the company’s software to identify sensitive documents. Merlon Intelligence performs customer risk assessment. It focuses on how financial crime and compliance are managed. These advancements are developing new applications in the energy sector thereby driving the market.
Rising Demand for Regulatory Compliance
Regtech is application of technology to address regulatory challenges in finance sector. Regtech uses cloud computing technology through SaaS software to comply with businesses efficiently by reducing the cost. Regtech works in collaboration with financial companies along with regulatory bodies to share information. Regtech allows banks to boost their responsiveness to regulatory change. It aims to automate the process of compliance for financial services. AI in Regtech is using potential of computer to recognize pattern or making prediction with the help of technology in regulatory compliance.
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AI in Regtech Market Challenges
Lack of Expertise and Data
A noticeable trend in the Regtech sector is the lack of skilled personnel who can deploy and utilize AI effectively. There are only a limited number of personnel who have the skillset to utilize AI and improve regulatory compliance and risk management. Another challenge compounding this lack of expertise is the lack of data. Unlike most other sectors, there is a comprehensive lack of data collection in regtech sector compounded by the regulations in place to limit data sharing. The primary groups using AI within financial institutions are focused on research and strategy or for very niche applications. These two factors are interconnected, as the limited data will hinder the number of use cases that can be explored with AI. Thus, these two factors are hindering market growth.
Product launches, acquisitions, and R&D activities are key strategies adopted by players in the AI in Regtech Market. The AI in Regtech Market is dominated by major companies such as WorkFusion, Onfido, Text IQ, Merlon Intelligence, Ayasdi, Regis-tr, cube and others.
Suade, one of the leading Regtech provides a platform that keeps banks in line and up-to-date with the latest prudential requirements without bank’s disruption.
Identity Mind Global Provides anti-fraud and risk management services for digital transactions by tracking payment entities.
Sybenetix, is used for trade surveillance context to analyze trading activity. It detects unusual behavior too. Another, Algo Dynamix, strengthens risk services by detecting disruptive events and anticipating price movements in advance.
AI in Regtech can improve data governance, business risk, and data compliance, and financial services technology.
Regtech is being used in cyber security and data privacy. This factor elevates the demand for artificial intelligence market in Regtech.
Artificial intelligence can recognize patterns and connections among data that humans cannot recognize.
Robo – advisors keep monitoring the events, stocks, bond and price trend according to user’s requirement which help them in making suggestion regarding which stock needs to be sell or buy. They play a very important role in risk management, speech recognition, network security access to big data etc.
Artificial Intelligence in Regtech is allowing companies to cut down their cost, automate their process and reduce the chances of error.
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