What’s the biggest challenge facing RegTechs during lockdown?

From: RegTech Analyst

While social distancing rules may be easing in some regions of the world, other countries are contemplating reinstating lockdowns. So what does that mean for RegTech companies?

The world has changed since the first rumours about a new disease started to slip out of Wuhan at the end of 2019. Those whispers soon turned into an alarm when the director general of the World Health Organization declared that the novel coronavirus outbreak was a public health emergency of international concern on January 30. A pandemic was coming.

When it arrived nations across the world responded in a number of different ways, but most of them enacted some kind of social distancing rules. Some countries, like the UK, went into full lockdown. Others, like Sweden, introduced more lenient restrictions where they essentially called on their citizens to use their common sense whilst keeping restaurants and gyms open.

But no matter what level of lockdown the authorities introduced, it provided plenty of obstacles for RegTech industry stakeholders to overcome.

“Initially, the biggest challenges resulted from the uncertainty about the impact Covid was going to have on their own businesses but also the impact it would have in the short and long-term on clients, partners and regulators,” says Anthony Quinn, founder and CEO of Arctic Intelligence, the RegTech company.

For instance, RegTech representatives were no longer able to attend events and establish partnerships that way. And forget about impromptu lunches or any other type of face-to-face meetings. Moreover, RegTech leaders also had to become accustomed to organising their own teammates remotely, using a selection of collaboration tools like Zoom, Skype and Microsoft Meetings.

However, these challenges have seemingly been accompanied by further acceleration of digital adoption among financial institutions. “Whilst lockdown has clearly created major disruption to most, it seems to have accelerated the conversation about remote working and the need for tech,” Quinn says.

Unsurprisingly, the same challenges that RegTech companies have faced have also affected their clients and potential partners. For instance, when they have tried to adjust to the new normal, these businesses have had to introduce new measures to ensure they have remained compliant whilst operating a remote workforce.

“Firms need to maintain transparency into how employees are communicating with clients and colleagues to ensure compliance with conduct, privacy, and cybersecurity mandates,” says Marc Gilman, general counsel and vice president of compliance at Theta Lake, the RegTech company.

“Recently implemented compliance regimes like the SEC’s Regulation Best Interest as well as existing privacy requirements under CCPA and GDPR pose oversight challenges for firms leveraging new communication tools.

“Given the rapid increase in the use of collaboration platforms like Zoom, Cisco Webex and Microsoft Teams to support remote communication, firms must use purpose-built RegTech tools to supervise what was said, shown and shared over these channels. In this sense, the challenge for RegTech should be to understand its customers’ pain points and architect solutions to meet those needs.”

Add to that a rising number of cyber criminals trying to leverage the pandemic to launch hack attacks, governments introducing new rules to help society cope with Covid-19 and having all of those on top of their regular compliance obligations, and it is clear that there is a demand for RegTech solutions.

Maybe that is the reason why the RegTech industry has defied expectations and continued to raise massive deals despite the shutdowns. In fact, the RegTech industry raised $3.9bn in total between January and June this year, according to FinTech Global’s research.

This follows from an annual increase in investment seen since 2015 when the sector attracted $1.1bn in investment. By 2019, that figure had jumped to $8.5bn.

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