The explosive growth in global regulations has made manual compliance tracking both inefficient and costly. In response, Regulatory Technology, or RegTech, has emerged as a solution that automates legal processes, allowing businesses to reduce their operational expenses by up to 50%. This article explains how this is achieved and highlights the areas where RegTech delivers the greatest benefits.
The origins of RegTech
The story of RegTech began after the 2008 financial crisis, which triggered a wave of new, complex regulations. Compliance departments were overwhelmed with new duties and struggled to keep pace with the changes.
This pressure led to the creation of the technology now known as RegTech. Simply put, these are modern systems designed to help companies adhere to regulations. Their purpose is to automate and streamline legal processes, thereby reducing the burden on employees.
Instead of relying on error-prone manual work, businesses can implement tools that help them manage risk effectively and operate within the law. Although these solutions originated in the financial sector, they are now successfully used in other highly regulated industries, such as healthcare and energy.
Why the RegTech market is growing so quickly
The sector’s rapid expansion is a direct response to what is often called the “regulatory tsunami.” The scale of this challenge is clear from the 500% increase in regulatory changes over the last decade.
With new rules appearing so frequently, manual tracking has become ineffective and, in practice, unfeasible. This near-impossibility has forced the market to seek automated tools, directly fuelling the sector’s rapid expansion. More data and examples are provided in this article about RegTech.
Global market forecasts for RegTech
Analysts agree on the market’s future and anticipate its continued dynamic growth. While specific financial forecasts from different firms vary due to differing analytical methods, they all point towards the same powerful upward trend.
For example, Fortune Business Insights estimates that the market’s value will climb from $15.8 billion in 2024 to $82.77 billion by 2032. This projection suggests that the compound annual growth rate (CAGR) will remain between 16% and 25%.
Where RegTech delivers the greatest benefits
Implementing automated compliance systems is a worthwhile investment because it addresses two significant financial problems: the high cost of maintaining compliance departments and the severe penalties for regulatory breaches.
Running these departments is expensive, as they employ between 10% and 15% of all staff in financial institutions. At the same time, fines for violations are enormous; the U.S. Securities and Exchange Commission (SEC) alone imposed penalties totalling over $5 billion in 2023. Modern software is therefore designed to automate tasks in the most important and costly areas.
The largest segment of the market is focused on compliance management. These systems automatically track legal changes and help companies adapt their internal procedures accordingly.
Another significant area is anti-money laundering (AML). Advanced analytics can reduce the number of false alarms by up to 90% while improving fraud detection effectiveness to 75%.
Automating the costly Know Your Customer (KYC) process shortens new client onboarding time by 70%. It also radically lowers costs, as manual work previously accounted for 83% of the expense in the traditional model.
Finally, tools for reporting and risk management automatically prepare regulatory reports and help identify operational, legal, or reputational risks. This function is particularly valuable given the rising number of cyberattacks.
Automating these processes yields tangible results. Companies can lower their operational costs by as much as 30%, and spending on combating financial crime can be cut by 50%. As a result, the return on investment (ROI) often exceeds 600%.
The challenges of implementing RegTech
Despite its clear advantages, the adoption of RegTech solutions presents several important challenges. The main barrier is often the high initial cost, especially for on-premise installations. Integrating modern tools with outdated legacy IT systems, a common issue in many financial institutions, is another difficulty.
Data security and privacy present a further key challenge, as RegTech systems process highly sensitive information and must meet the highest protection standards. The consequences of failure can be severe; for instance, non-compliance with GDPR can result in fines of up to 4% of a company’s annual turnover.
The future of the RegTech industry
The future direction of the industry is being shaped by autonomous compliance systems built on three technologies: artificial intelligence (AI), blockchain, and cloud-based services (RaaS). AI functions as the system’s analytical brain, making it possible to predict threats and automate decisions. Blockchain creates a secure and immutable record of data, which is essential for audits. These capabilities are delivered through a flexible cloud model that lowers the barrier to entry, turning large one-off capital expenditures into predictable, ongoing operational costs.
This transforms investment in compliance management from a necessity into a strategic decision with a high rate of return. The compliance department ceases to be merely a cost centre and becomes a tool that enables a company to grow safely. Instead of merely reacting to regulations, modern systems allow businesses to anticipate threats, leading to greater effectiveness and genuine savings.
