International Journal of Management and Economics Fundamental
14
https://theusajournals.com/index.php/ijmef
VOLUME
Vol.05 Issue 05 2025
PAGE NO.
14-19
10.37547/ijmef/Volume05Issue05-03
Regtech Development: How Technology Is Changing
Governance with Market Compliance in The Era of
Digital Finance
Aigerim Sydykova
PhD student, South Korea
Received:
09 March 2025;
Accepted:
05 April 2025;
Published:
08 May 2025
Abstract:
In the era of digitalization of financial services, regulatory compliance has become one of the key drivers
for sustainable development of organizations. RegTech (Regulatory Technology) represents a new generation of
technology solutions focused on automating, optimizing and improving the efficiency of compliance processes.
This article discusses the development of RegTech, its key tools and its impact on financial institutions in the
context of digital transformation.
Keywords:
RegTech, digital finance, automation, optimization, sustainability, compliance, digitalization, financial
technology, risk management.
Introduction:
In the 21st century, the digital economy
has become an integral part of the global landscape,
which
requires
continuous
development
and
improvement. The integration of financial technologies
into everyday life transforms habitual behavioral
patterns and has a significant impact on economic
processes. The need for the digitalization of the
financial market is driven by the desire to increase the
efficiency and transparency of operations, as well as to
expand access to financial services. However, the
introduction of new technologies is associated with the
emergence of specific risks, which actualizes the
question of the role and place of the regulator in the
process of digital transformation. Transformation
should involve not only financial market participants,
but also regulators themselves, who should adapt their
methods and tools to the new realities. Harnessing the
power of digital technologies for supervisory purposes
is a key aspect of ensuring the stability and efficiency of
the financial system.
Regulation of digital technologies in the financial sector
requires a balanced and comprehensive approach,
taking into account both potential benefits and
possible risks. The legal framework should be designed
to foster innovation and development of the digital
economy, while protecting consumer rights and
preventing abuse. Regulation and supervision of
financial institutions remain critical components of
maintaining the stability of the financial system in the
context of digital transformation.
As a response to the challenges of digitalization,
regulators are actively implementing SupTech and
RegTech technologies aimed at automating and
optimizing supervisory and compliance processes. The
use of these technologies can improve the efficiency of
supervision of financial institutions, promptly identify
potential risks and ensure regulatory compliance in a
rapidly changing technological landscape.
Today's financial markets are undergoing rapid change
due to digitalization, decentralization and data growth.
In this environment, traditional methods of risk and
compliance management are becoming ineffective.
Against this backdrop, RegTech - technologies for
automating and optimizing regulatory processes - is
developing. According to Professor Douglas Arner:
"RegTech promises not only to increase efficiency, but
also to radically transform the approach to financial
regulation" [1] [1].
According to a number of researchers, the activation of
the introduction of RegTech technologies was observed
after the global financial crisis of 2008. This crisis served
as a catalyst for the tightening of regulatory
International Journal of Management and Economics Fundamental
15
https://theusajournals.com/index.php/ijmef
International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
requirements and increased control over financial
market participants by regulators in various countries.
The post-crisis period was characterized by a significant
increase in the volume of regulations and
requirements, which led to the need for many
companies to expand their staff to monitor changes in
legislation.
The regulators themselves also faced challenges as they
were faced with an increased volume of information to
process and monitor, which resulted in increased time
expenditures. At the same time, the increasing
complexity of technological innovations and the
transformation
of
financial
instruments
have
demanded more efficient and advanced monitoring
and control tools from market participants.
Currently, there is a process of forming a generally
accepted definition of the term RegTech, considered as
a new class of digital technologies (see Table 1). Most
academic papers associate RegTech with the
application of innovative technologies to achieve
certain goals, but the specific formulation of these
goals varies from author to author. RegTech is used by
both regulators and companies, with unified
technologies based on common sources of digitized
information and data flows. RegTech is thus a
comprehensive
approach
to
automating
and
optimizing financial compliance processes for both
regulators and regulated entities.
International Journal of Management and Economics Fundamental
16
https://theusajournals.com/index.php/ijmef
International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
Table 1
–
Definition of RegTech in the Context of Various Studies
Thus, RegTech (from the English Regulatory
Technology) is a set of technological solutions aimed at
providing more effective compliance management. It
includes such technologies as artificial intelligence,
machine learning, blockchain, cloud computing and big
data analytics [10]. As Professor Jason Barberis notes:
"RegTech is a natural evolution of FinTech and reflects
the transition from the digitalization of services to the
digitalization of regulation" [1]. [1].
A number of factors determine the desire of financial
institutions to integrate regulatory technologies into
their activities. Dynamic changes in the regulatory
environment and the high costs associated with
ensuring compliance with regulatory requirements
actualize the need for effective solutions. In this
context, the role of companies specializing in the
development and implementation of RegTech tools is
increasing. It is important to note that technological
Source
Key aspects of the RegTech definition
Arner D.W. (2017) [1]
Innovative technological solutions to improve or radically transform
financial regulation.
Institute of International
Finance (2016) [2]
Technologies that improve the efficiency and effectiveness of regulatory
and compliance processes.
CB Insights (2017) [3]
Technology solutions and software designed to optimize compliance
processes and ensure regulatory understanding and compliance (broadly
defined).
Technologies that enable compliance, risk management and
implementation of controls, with the ability to be fully automated
through AI, machine learning and blockchain (narrowly defined).
Ernst & Young (2019)
[4]
Applying advanced technologies to analyze large data sets to address
compliance challenges.
Вершицкий
А.В.,
Вершицкая
Н.А.
(2020) [5]
Technologies designed to ensure prompt and effective enforcement of
mandatory requirements, as well as preventive authorized intervention
in the activities of controlled entities.
Понаморенко
В.Е.
(2020) [6]
Technology solutions that provide responsive, flexible, easily
integrated, reliable, safe and cost-effective solutions that meet regulator
standards.
Barefoot J.A. (2020) [7] Digital technologies applied to financial regulation, differentiated into:
1) SupTech - supervisory technologies for regulators;
2) Technologies for use by financial organizations in accordance with
laws and regulations.
Центральный
банк
Российской
Федерации (2021) [8]
Technologies used by financial institutions to improve compliance with
regulatory requirements.
Institute of International
Finance (2021) [9]
Utilize new digital technologies to address compliance challenges more
efficiently and effectively.
International Journal of Management and Economics Fundamental
17
https://theusajournals.com/index.php/ijmef
International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
transformation requires adapting the internal control
system of financial organizations to new operating
conditions.
With the rapid digitalization of the financial sector and
tougher regulatory requirements, there is a growing
need for technological solutions capable of ensuring
timely
and
effective
compliance.
Regulatory
Technology is a set of innovative tools aimed at
automating and optimizing regulatory processes. These
technologies are widely used in the areas of
compliance,
risk
management,
reporting
and
interaction with supervisory authorities. For a deeper
understanding of the potential and applied significance
of RegTech, it is advisable to consider its key areas of
development.
1.Automation of compliance processes. Modern
RegTech solutions increasingly utilize artificial
intelligence (AI) and machine learning (ML)
technologies to automate routine compliance tasks.
Tools for KYC (Know Your Customer) and AML (Anti-
Money Laundering) are particularly active, enabling
real-time:
- detect suspicious transactions,
- track anomalies in customer financial behavior,
-conduct automatic identity verification using
biometric data.
For example, the ComplyAdvantage platform uses ML
to monitor transactions in more than 100 countries,
and Onfido, a leader in digital identity, provides
verification services with facial and document
recognition. This enables financial institutions to
reduce risk and accelerate customer onboarding
processes.
2. Reducing compliance costs. With increasing
regulatory complexity and stricter requirements for
financial institutions, compliance costs have become
one of the most significant budget items. According to
a Deloitte report, automation with RegTech can reduce
compliance operational costs by up to 50%, especially
in areas such as:
- regular reporting to regulators,
- control over cross-border transactions,
- checking for compliance with sanctions lists.
Large banks such as HSBC and Barclays have already
implemented RegTech tools, allowing them to reduce
their transaction monitoring staff and reallocate
resources to more strategic areas.
3. Transparency and reporting. Professor Dirk Zetzsche,
a researcher in the field of financial regulation,
emphasizes that "technology reporting is the path to
full regulatory transparency, minimizing risk and
increasing trust" [10]. Regulators, especially in EU
countries,
encourage
the
implementation
of
automated reporting systems, including Regulatory
Reporting APIs, which allow:
- re-deliver data in real time,
- generate reports without manual intervention,
- avoid human errors and manipulations.
An example is the AxiomSL platform, which is used by
banks to prepare Basel III, EMIR, MiFID II and other
regulatory reporting.
4. Cyber risk management. As the volume of digital
transactions increases, so does the threat of
cybercrime. RegTech helps organizations not only
detect fraudulent activities, but also prevent data
leakage, which is especially important in the era of
GDPR and similar regulations.
Darktrace, using AI, simulates attacker behavior and
detects anomalies in IT systems before they lead to an
incident. According to a PwC study, organizations that
have implemented RegTech cybersecurity tools are
37% faster to detect leaks and regain control of the
system.
5. Integration with FinTech and SupTech. RegTech's
interaction with FinTech and SupTech (Supervisory
Technology) opens up new opportunities for both the
private and public sector. SupTech are technologies
that regulators use to:
- monitoring the market in real time,
- analyzing big data,
- preventing systemic risks in the banking sector.
For example, the Dutch Central Bank (DNB) is actively
using SupTech solutions to analyze the reporting of
banks and insurance companies, and the UK Financial
Conduct
Authority
(FCA)
has
developed
an
experimental Regulatory Sandbox, where FinTech
companies test their RegTech solutions in a real
regulatory environment.
Kazakhstan is also seeing a growing interest in SupTech.
Kazakhstan's Agency for Regulation and Development
of the Financial Market is developing digital tools for
monitoring the banking and microfinance sectors,
which promotes synergies between private RegTech
platforms and state supervisory systems.
Examples of well-known RegTech companies and the
tools they offer include:
1.IdentityMind Global: provides anti-fraud and risk
management services focused on the field of digital
transactions.
2.Trunomi: specializes in managing customer consent
for the use of their personal data, ensuring compliance
International Journal of Management and Economics Fundamental
18
https://theusajournals.com/index.php/ijmef
International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
with data protection legislation.
3.Suade: offers solutions that enable banks to provide
the necessary regulatory reports without disrupting the
existing information system architecture.
These examples demonstrate the diversity of RegTech
solutions aimed at automating and optimizing various
aspects of compliance in the financial sector.
In the context of the dynamic development of the
digital economy, RegTech is becoming a key driver for
transforming compliance management in the financial
sector. An analysis of promising areas of RegTech
development allows us to highlight the following key
trends:
Category
Аспект
Описание
Advantages
Improved responsiveness to
changes in the regulatory
environment
RegTech solutions provide rapid adaptation
to new regulatory requirements, enabling
financial organizations to stay compliant in
a dynamic environment.
Minimize risks associated
with human factor and errors
Automation of compliance procedures
significantly reduces the likelihood of
human error, increasing the accuracy and
reliability of compliance with regulatory
requirements.
Improving customer
experience by optimizing
KYC/AML procedures
RegTech helps accelerate customer
identification and verification (KYC) and
anti-money laundering (AML) processes,
which enhances customer convenience and
increases customer satisfaction with the
services provided.
Challenges
Significant financial costs of
implementation
Implementing RegTech requires a
significant investment in software
purchases, integration with existing systems
and staff training, which can be a
significant barrier for smaller organizations.
Need to modernize IT
infrastructure
Integrating RegTech solutions often
requires adapting existing IT infrastructure,
which can be a complex and resource-
intensive process requiring the involvement
of qualified specialists.
Lack of unified standards and
RegTech regulation
The lack of clear RegTech standards and
regulation creates uncertainty, makes it
difficult to select optimal solutions and can
increase the risks associated with the use of
untested or unreliable technologies. This
can lead to difficulties in ensuring
compatibility and interoperability between
different solutions.
Table 2 - Advantages and challenges of RegTech implementation in the financial sector
According to the World Economic Forum report, "in the
next five years RegTech will become a key driver of
reforms in the regulation of global financial systems"
[11]. [11]. The European Banking Authority also notes
that RegTech "not only optimizes the supervisory
process, but also creates the basis for risk-based
supervision" [12] [12].
Thus, RegTech is an important tool for business
adaptation to the digital economy and constantly
changing regulation. It not only reduces operational
costs, but also increases sustainability and financial
transparency. The future lies with those companies
that manage to integrate RegTech into their digital
transformation strategy.
REFERENCES
Arner, D. W., Barberis, J., & Buckley, R. P. (2017).
FinTech, RegTech, and the reconceptualization of
financial
regulation.
Northwestern
Journal
of
International Law & Business, 37(3), 371-413.
2RegTech in Financial Services: Technology Solutions
International Journal of Management and Economics Fundamental
19
https://theusajournals.com/index.php/ijmef
International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
for Compliance and Reporting. (2016). Institute of
International
Finance.
Retrieved
from
https://www.iif.com/Publications/ID/1686/Regtech-
in-Financial-Services-Solutions-forCompliance-and-
Reporting (Date of access: 05.04.2025).
3RegTech 101: What It Is, Why Now, & Why It Matters.
(2017, November 2). CB Insights. Retrieved from
https://www.cbinsights.com/research/RegTech-
trends-fintech/ (Date accessed: 05.04.2025).
Regulatory technology (RegTech) Navigating the right
technology to manage the evolving regulatory
environment. (2019). EY regulatory technology
(RegTech) brief.
Vershitsky, A. V., & Vershitskaya, N. A. (2020).
Regulatory technology (REGTECH) as a method of
improving regulatory and legal regulation. Economics
and Entrepreneurship, (6)(119), 946-949.
Ponamorenko, V. E. (2020). Topical approaches of
global financial regulators to digitalization of banking
supervision and compliance. Banking, (2), 62-68.
Barefoot, J. A. (2020). A RegTech Manifesto;
Redesigning Financial Regulation for the Digital Age.
Retrieved
from
https://regulationinnovation.org/RegTech-manifesto/
(Date accessed: 25.04.2025).
Main directions of development of SUPTECH and
REGTECH technologies for the period 2021-2023.
(2021).
Bank
of
Russia.
Retrieved
from
https://www.cbr.ru/Content/Document/File/120709/
SupTech_RegTech_2021-2023.pdf (Date of circulation:
05.04.2025).
RegTech. Institute of International Finance. Retrieved
from https://www.iif.com/Innovation/RegTech (Date
of access: 15.04.2025).
Zetzsche, D. A., Buckley, R. P., Arner, D. W., & Barberis,
J. N. (2020). Regulating a digital financial world:
RegTech and SupTech. Oxford Journal of Legal Studies,
40(3), 545-575.
World Economic Forum. (2017). Beyond Fintech: A
pragmatic assessment of disruptive potential in
financial
services.
Retrieved
from
https://www.weforum.org/reports
European Banking Authority. (2021). Report on
RegTech: Use and uptake by EU banks and the
supervisory
response.
Retrieved
from
