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Reimagining Risk Operations with Regtechs

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6 December 2021
Arin Ray

The Risk team at Celent has regular conversations with industry participants to identify the technology and operational challenges they are facing, and the opportunities for improvement. Over the past few years, several clients have reached out to us to help them understand regtech—the application of advanced technology to risk management and regulatory compliance functions. Banks and other financial institutions are intrigued by the possibilities for change, and regtechs often present themselves as a magic bullet that can solve the longstanding and intractable challenges facing risk operations. Dozens, even hundreds, of regtech providers are emerging, but it can be difficult to separate the hype from reality and identify the contenders from the pretenders.

So, we recently launched a Regtech Research Series to help financial firms assess what is the state of market. This series focuses on innovation in risk technology and on the solutions that have demonstrated the most promise in helping banks and other financial institutions stay at the forefront of technology innovation.

We consider regtechs to be risk and compliance solution providers that are 5 to 7 years old and offer solutions powered by next generation technologies such as artificial intelligence (AI), machine learning (ML), and cloud. They are often funded by private equity or venture capital, and some are even self-funded. Additionally, we consider new solutions from incumbent vendors that are powered by new technology and addressed at solving new challenges in compliance.

Celent has covered regtechs and AI in its research since 2015, and we have profiled many regtech vendors in our risk research over the years. We regularly track and update our internal list of over 300 regtech companies that span a variety of use cases in risk and compliance such as financial risk, GRC or governance risk and compliance, regulatory reporting, cybersecurity, supervisory technology, and financial crime technology including AML, KYC, fraud, and trade surveillance.

In this recent regtech series we are publishing two types of reports: thematic reports discussing themes, trends, and landscape views of the industry; and focused solution briefs analyzing regtech vendors and their innovative solutions.

  • We have published the thematic report, Remaking Risk: A Taxonomy of Regtech, that provides a taxonomy of the regtech universe where we offer our framework for analyzing this complex and rapidly evolving ecosystem.
  • We have also published 4 Regtech Solution Briefs analyzing specific companies that have the potential to disrupt the traditional practices in compliance.
    • One of them is Quantexa whose main proposition is the Quantexa platform which is underpinned by its Entity Resolution and Network Analysis capabilities. Quantexa has proved its mettle in the first use case it developed for complex case investigation in financial crime compliance, especially in KYC and AML. Quantexa has now leveraged the same principles and frameworks of entity resolution and network analysis and applied them for generating alerts in transaction monitoring.
    • Another regtech company that we have published in this series is Napier. Napier positions its platform as a solution that can link different processes in anti-financial crime operations, such as KYC, watchlist screening, and transaction monitoring, and monitor complex behavior on a single platform. The company has already tasted success, especially among the mid-tier market of financial institutions and corporations. It is now looking to move upmarket and grow its footprint among large FIs.
    • The third regtech in this series is Silent Eight who have developed an AI-powered solution called Silent Eight Alert Resolution that is designed to automate the level 1 alert investigation process in watchlist screening. For each investigated alert, Silent Eight provides a decision supported by a narrative or rationale written using natural language generation (NLG) techniques. They are now in the process of developing a similar solution for investigating transaction monitoring alerts.
    • We have profiled another regtech Droit Financial Technologies that addresses regulatory reporting. Droit's core competence is digitization of regulatory rule books and supervisory policies into an integrated taxonomy, underpinned by its regulatory data model and formal logic expressions. Droit’s solution spans multiple activities in the regulatory compliance lifecycle that firms typically handle in a one-off, disjointed manner, and translates regulatory information into "machine-actionable" information for automated control and compliance purposes.

We will continue to publish more research as part of this series, both thematic reports and solution briefs covering regtech vendors operating in other risk functions such as fraud, GRC, and others. If you have questions or feedback about our regtech coverage, please feel free to reach out.