The advent of the pandemic led numerous sectors to undergo a serious downturn and yet, regtech remained one of the few that flourished, especially in the Asia Pacific (APAC) region.
For many financial services organisations, it compelled an urgent increase in investment to digitise processes, not only to facilitate seamless customer onboarding but also in response to growing regulatory pressures for more robust compliance and risk controls.
One of the curious aspects about the financial services industry is that while investment in technology has boomed over the past number of decades, the basic cost of financial intermediation has remained the same at around 1.87 per cent, as studied by NYU Stern School of Business.
Fintech Commentator David Birch speculates that this occurs as the cost and complexity of financial regulations has increased faster than industry can gain efficiencies.
Therefore, it is with regtech where the opportunity lies in truly driving improvements in the financial services industry and ultimately a better experience and end value for the wider economy.
Understanding the lay of the land
Prior to the pandemic, the APAC region’s regtech landscape was already seen as the most promising globally. In fact, it is forecasted that the global regtech market will grow from US$6.3 billion in 2020 to US$16.0 billion by 2025, a rate of over 20 per cent per year, with APAC expected to have the highest growth rate over this period.
The projected growth of the sector is in tandem with the booming fintech scene in the region, particularly in Southeast Asia which saw an estimated US$1 billion worth of investments in 2019 according to World Bank reports.
Also Read: New normal preparation: How regtech can help the financial industry tackle money laundering
Recent initiatives are a testament to the sector’s rising growth and relevance in the past few years. Home to some of the world’s major financial centres, the burgeoning regtech scene is supported by progressive initiatives led by regulators in these financial hubs.
The Monetary Authority of Singapore (MAS) for example introduced the Regulatory Technology (Regtech) grant scheme and the Digital Acceleration Grant (DAG) scheme to bolster Singapore as an attractive market for global regtech players.
In Hong Kong, the Hong Kong Monetary Authority (HKMA) has expanded its Banking Made Easy initiative to facilitate regtech developments focusing on anti-money laundering (AML) and counter-terrorist financing (CTF) surveillance technologies, regtech for prudential risk management and compliance, and study on machine-readable regulations.
It is encouraging that regulators are becoming increasingly forward-thinking and dynamic. While risk will always have a role to play in the industry, the lessons learned from events such as the 1MDB scandal, Wirecard collapse, Luckin Coffee and Hin Leong Trading show that there is a myriad of opportunities for regulators to better protect consumers and the broader financial system.
It is widely accepted that judicious deployment of technology will further enable the industry to meet the next generation of compliance obligations.
Waking the sleeping beast
Although APAC is home to a vibrant financial services ecosystem, the reality is that the region is extremely diverse and non-homogenous, with varying levels of market development. And this is a key challenge for many regtech companies.
Ireland’s state innovation and trade agency Enterprise Ireland, ranked one of the world’s most active VC investors, including fintech, published the The State of Regtech in APAC Report which revealed that regtech uptake in developed economies such as Hong Kong, Singapore, Sydney and Tokyo, is driven by a sophisticated financial ecosystem and a complex regulatory environment.
Enterprise Ireland commissioned a financial technology market research and consulting firm –Kapronasia – to develop the Report which identifies the latest opportunities and roadblocks facing regtech players in each of these markets.
In established financial centres such as Hong Kong and Singapore, the drive for greater accountability and governance combined with the emergence of new market participants in fintech leads to the stronger regulatory impetus for regtech adoption.
Additionally, disruptive technologies such as artificial intelligence and distributed ledger technology are giving rise to security concerns, further underlining the necessity for regtech solutions.
Also read: What opportunities lie ahead for compliance technology in 2020 and beyond
Meanwhile, for neighbouring Southeast Asian economies, regtech uptake is often driven by the sector’s promise in driving financial inclusion, which is increasingly subject to ambitious national government targets, for example in the Philippines.
Uptake is highly reliant on business cases and regulators’ priorities in these markets. Furthermore, it may take some time for international regtech providers to offer solutions to banks that truly reflect the local regulatory reality.
But it is worth keeping in mind that technology ecosystems in the different APAC economies will evolve at a varied pace, given differing regulatory drivers for regtech adoption. This is especially evident in the wake of the COVID-19 pandemic that has further reinforced differing domestic priorities and exacerbated the economic and technology gap in APAC.
A broad market understanding of the APAC region is critical for the regtech industry to thrive in a post-COVID-19 world. No doubt a particular challenge to regtech solution providers is the variance between the many countries in APAC in how their respective industries are regulated.
This presents an opportunity for regtech companies to demonstrate their agility in adapting their business models and in innovating for solutions that keep pace with varying market development levels as well as their respective needs. Regtech providers can also show regulators what can be achieved locally in aspiring to global best practice through the use of technology.
Yet, with ongoing fintech industry consolidation taking place in advanced economies such as Singapore, all eyes will be on the industry to observe the implications for the regtech scene in time to come.
Expanding the Irish regtech footprint
APAC continues to be a strategic region, despite its market variations, to Ireland and the world. Even before the pandemic, many Irish regtech companies have established their footprint in the region and have accumulated experience in resolving the types of risk and compliance issues that are now faced by companies across APAC.
As Ireland has long been a middle-office and compliance hub for the European and US markets, with deep knowledge and technical expertise, this has incubated some world-leading regtech firms, such as Fenergo, Daon, MyComplianceOffice and KnowYourCustomer.
Enterprise Ireland is also one of the world’s most active seed investor in technology companies with a portfolio of more than 40 client companies in the regtech space.
One example is AQMetrics, an AI risk and regulatory intelligence technology company for funds, asset managers and fund administrators that is headquartered in Kildare, a mere 30 minutes from Dublin. Just this year, they had successfully opened their Singapore office which will serve as their headquarters in the APAC region.
Marrying Europe’s position as a global leader in regulatory and compliance standards, which range from open banking to data protection, with Enterprise Ireland’s investment in innovative technology-driven companies, it has all provided fertile soil for Ireland to prime APAC as a world-class regtech cluster and support the regtech boom globally in time to come.
To download the Whitepaper, please see IrishAdvantage.com
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