Complying with all the laws and regulations of the financial industry is not an easy job for banks, and it just keeps getting more difficult. Thanks to the rise of crime around the world, banks are under government pressure to implement important know-your-customer rules that are designed to thwart money laundering and fraud. The cost of that regulation alone is an estimated $10 million. However, banks can now outsource the expertise and technology to a company that specializes in helping them fully comply with government oversight. These companies are known as regtech, short for regulatory technology. And they might charge the bank just $300,000 to handle the requirements for the banks. But the regtech companies profit by supplying their expertise to many customers, taking advantage of economies of scale. Plus, they use the most advanced technological tools such as the blockchain, advanced software and Artificial Intelligence. That’s why outsourcing this expertise to a regtech company is so much less expensive for the banks than keeping the specialized data in-house. Even a high-powered firm of lawyers can’t compete with regtech.
That’s why Jeff Yastine says regtech is an important new technological sector investors should consider putting their money into. He covers it in his financial newsletter, Total Wealth Insider.
International banks have an especially difficult task. They must follow the laws and regulations of every country they operate in, even though every country passes its own laws and they are often different from each other. Let’s Talk Payments is a financial technology website. They estimate the cost for international banks to comply with every regulator around the world is $70 billion. And it estimates that will rise to $120 billion in the next three years. And the cost of complying with banking regulations is even higher in the European Union than in the United States. The same $10 million it costs a bank in the U.S. to track the identities of their customers amounts to $1 billion in Europe, according to HSBC and Deutsche Bank. Learn more at Seeking Alpha about Jeff Yastine
The regtech opportunity is becoming even bigger as the regulators are learning about these companies. They are willing to give these regtech companies access to information in the same way federal regulators work with Moody’s and Standard & Poor’s to establish credit ratings for the bond market. Making sure the regtech companies are up to speed makes the job of regulators that much easier, without giving any one particular bank a competitive advantage over another. For more updates, visit:https://stocktwits.com/jeffyastine