Can RegTech Save Us Towards Overloaded Regulations?

Compliance may not sound very exciting. But the digitization of compliance through new regulation technology – or RegTech – solutions is a key to huge savings and efficiencies, which will boost productivity across industries.
Compliance is a huge pain point for organizations. In Australia, a 2017 report by economic advisory consultancy AlphaBeta said that compliance had become the fastest-growing sector of the Australian economy, at an estimated cost of around AUD 250 billion a year.
Governments are responding to growing financial risks, and tackling issues such as money laundering and the Know Your Customer (KYC). These have helped to balloon the number of regulations that financial institutions must deal with daily.
Governance, risk management, and compliance (GRC) now account for up to 20% of all total banking costs, according to the AlphaBeta report. According to the report, 88% of financial institutions in Australia say the cost of compliance and managing risk has increased in the last five years.
Clearly, old paper-based methods for keeping up with regulatory change and distributing this information to business units and through them to customers are just not up to the job. Fortunately, digital tools are.
Laws, contracts, and other regulatory documents can increasingly be converted into a machine-readable format, allowing the automation of auditing and compliance.
Automating the compliance process can reduce costs, while machine learning techniques can minimize human error and improve the surveillance and detection of fraud.
According to AlphaBeta, one global bank achieved a 26% reduction in identifying fraudulent, false positives after applying machine learning to improve transaction monitoring.
Government Takes Lead
In Australia, much of the work surrounding the development of new technologies to enable RegTech has come from the national science organization CSIRO, and its digital development arm Data61.
The CSIRO is the organization that claims to have invented WiFi, which is now as ubiquitous as oxygen in the modern world. It also created plastic banknote.
Over the last ten years, Data61 has been working in the area it calls "legal informatics." It uses AI and machine learning to automate legislative, compliance, and administration tasks.
Success could be lucrative.
AlphaBeta estimates this market will be worth as much as AUD 40 billion globally by 2028, and between AUD 10-15 billion in the Asia Pacific.
The Data61 approach to this is to "re-imaging regulation as an open platform, based on digital logic," which supports an ecosystem of digital regulation tools.
Their work is not industry-specific. Instead, the approach is to use a range of technologies to create an infrastructure which can then be further developed by industry and subject matter experts to develop specific platforms.
The idea is to unblock the digital supply chain of regulatory information, distributing it across the silos in an organization to reduce double handling and where possible automate as many processes as possible. The reward is time and cost savings, improved legal compliance, but also significant gains in productivity.
Deciphering Errors From Theft
One example of a company looking to reduce double handling and automation is PaidRight. It is a joint venture with major accounting firm PwC, which deals with compliance on labor issues and employee compensation.
This is a particularly hot topic in Australia at the moment. There are several high-profile cases of "wages theft" in industries, where employers claim that high regulatory burden led to errors and that these were not deliberate theft.
PaidRight uses the Data61 advanced data analytics to interpret the complexities of modern awards and enterprise agreements to identify errors that may exist in a payroll.
The platform calculates what should be paid using Enterprise Agreements, Awards, timesheets, employee master data, and payslip results, and compares these to what was paid to identify discrepancies.
Right now, these solutions wade through a mass of legislation and regulatory tables to pull out the data they need.
That is becoming easier as technologies such as natural language processing, robotic process automation, and machine learning develop even further in the coming years. But it will be even easier when regulations are written with this digital enablement built-in. These can then be seamlessly uploaded to future platforms for distribution.
Startups Take Notice
That is some way off, but the RegTech industry is starting to paddle hard. Last week the Cambridge Centre for Alternative Finance (CCAF) published its first Global RegTech Benchmarking Report sponsored by EY Japan.
According to the research, the RegTech industry topped USD 5 billion in revenue in 2018 following a five-year surge in startup activity.
CCAF reports that about 60% of all Regtech firms were founded and 82% had their first funding round over the last five years as interest has grown.
Based on 11 interviews, the report says that RegTech firms currently employ an estimated 44,000 people globally, after raising about USD 9.7 billion in external funding to date. 
All of this is being driven by the massive increase in regulation this decade. That might be a significant burden and a headache, but the good news is that we are rapidly developing the technology tools to deal with the regulatory tsunami.