The global market for regulatory technology (RegTech) will nearly triple in value from $4.3 billion last year to $12.3 billion by 2023, representing a compound annual growth rate (CAGR) of 23.4 percent. That’s according to the latest sector analysis from analyst firm Markets and Markets, published through ResearchAndMarkets.com.
That five-year growth will be driven by a range of factors, notably the increased cost of regulatory compliance, a ‘sandbox’ approach to new rules and regulations, and the low barrier to entry for software as a service (SaaS) based offerings.
However, regulatory divergence could hinder the growth of RegTech solutions in some regions, suggests the firm – analysis supported by our separate report on the challenges facing the UK banking sector in 2019 as Brexit looms on the horizon.
Unsurprisingly – in what is a complex and politically challenging period for business worldwide – the risk and compliance management segment is expected to be the biggest in the RegTech sector, says the report.
Risk management is essential for businesses to function seamlessly when penalties for non-compliance can be punitive and reputational damage severe and long-lasting. Analysing real-time data, monitoring and controlling risk, implementing risk impact assessments, and prioritising different levels of response are among the key functions of risk management software.
However, RegTech applications are no longer limited to multinationals and large-enterprise buyers, adds the report, with small and medium-sized businesses set to achieve the biggest growth in demand over the forecast period. Arguably, this illustrates the shift towards digital business in organisations of every size, as well as the fast-changing regulatory environment.
In terms of geography, the Asia Pacific (APAC) RegTech market will grow the fastest, predicts the report, due to soaring regional investments in digital transformation, extensive development of local infrastructures, and the rising GDP of many countries in the region.
Economies that have grown rapidly in recent years, such as China, Japan, Singapore, and India, are implementing fintech solutions across a number of business processes, and RegTech vendors hold out the promise of software to simplify the process of implementing regulations within financial institutions.
However, an earlier report published through ResearchAndMarkets.com, by Infoholic Research LLP in July 2018, challenged some of the new report’s figures. While the estimated CAGR of the global RegTech market is similar in that report – 25.4 percent over five years – Infoholic estimated that the global RegTech market would be worth just $2.3 billion in 2018 (from halfway through the year), growing to $7.2 billion by 2023.
However, Infoholic agreed that the compliance management segment would grow fastest over the forecast period, as solutions help organisations in key areas, such as AML, KYC, MiFID II, Basel III, PSD 2, Solvency II, and AIFMD.
The adoption of RegTech is currently highest in Europe, owing to strict rules covering financial transactions and data protection. However, APAC holds out enormous potential for RegTech vendors and is expected to grow at the highest CAGR, confirmed the July report, which also shared the rival analysts’ view of the SME market’s potential.
As ever with five-year analyst forecasts, the overall trends make for more insightful reading than the differing revenue estimates.
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