RegTech: The Next Wave of Technology is Arriving
- Written by TechXO Team
- Category: RegTech
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Transforming cities, healthcare, and finance, the next wave of technology is arriving. The regulatory landscape has become difficult to steer, that is why regulatory technology is going to reduce these burdens.
Startups are emerging to solve the greatest challenges in housing, as The New York Times newly profiled.
The startups arise to interrupt what former AOL Chief Executive Officer Steve Case likes to call the “Third Wave,” industries having a big social impact such as housing, healthcare, and finance.
The startups need to guarantee compliance with regulations to survive. Any mistake will have a big social consequence in the future. Legal technology and regulatory technology help businesses navigate rules set in a text like contracts or regulations to assist startups to survive.
Incumbents that have the most resources to hire lawyers to navigate these rules will dominate in the Third Wave without them.
Third Wave startups should take every step cautiously. Unaudited prefab housing designs could imply the use of substandard safety measures and occupant deaths during an earthquake or other calamities. For instance, lapses in financial transactions may unintentionally cause money laundering. Privacy infraction in healthcare information could result in an inequitable increase in insurance premiums for affected individuals.
Regulations can be complex to reduce these social harms. For instance, in the finance sector, the new Markets in Financial Instruments Directive has 30,000 pages. Banks spend over $1 billion per year (20% of their operational budget). In 2014, Citigroup reportedly hired 30,000 lawyers, auditors and compliance officers.
Ignorance can longer be a viable business strategy. Fintech startups have spent over $200 million in regulatory fines: 50 percent involving consumer mistreatment and 25 percent involving privacy violations for the past three years.
After violating insurance brokerage laws, Zenefits fired over 17% of its employees, including its CEO. LendingClub postponed operations and fired 10% of its employees because of violating state usury and unfair dealing laws.
Companies can never run away from regulatory and social responsibilities.
Uber is now dealing with regulators directly, unlike its “do first, ask for forgiveness later” approach before.
Venture Capitals like Evan Burfield in Regulatory Hacking claims that strategies like this are important for the next wave of startups.
Large companies like JP Morgan and Uber have the most money and staff to navigate an increasingly complex regulatory landscape. They are in the best position to define the future and the Third Wave.
Legal technology and regulatory technology are capable of changing this trend. These technologies use methods from data analytics to decision trees to help companies navigate rules such as contracts and regulations.
Fenergo revolutionized a highly manual document review for Know Your Customer (KYC) regulations using text analysis and rule logic, making the process 37% faster.
Relevant startups are minimizing the costs associated with complying with corporate contracts, bankruptcy, zoning requirements and for accessory dwelling, permitting processes and energy standards.
Because of this setting, analysts are confident about these technologies. Approximately $1 billion has been invested in legtech. Costs on regtech in finance alone is projected to increase from $10 billion in 2017 to $76 billion in 2022 (a 700 percent increase in five years). In contrast, in 2022, spend on the sharing economy is approximated to increase from $18 billion in 2017 to $40 billion.
Adopting legal technology and regulatory technology can set long-term competitive benefits. Embracing technology that automates data protection can create better customer experiences. By carefully analyzing more information, even startup companies can easily generate insights and build programs that provide value to their clients.
Whether you are a startup or a leading company, technology can empower your business to embrace the mitigation of social harms and for the furtherance of positive impact.