Five Steps to Driving the Further Adoption of RegTech

The regulatory environment is shifting fast. Firms across industries are grappling with a rising tide of rules around anti-money laundering, data privacy, and ESG compliance. According to LexisNexis Risk Solutions, the global cost of financial compliance topped $200 billion in 2023. This was an increase of 10% from the previous year. For many compliance professionals, RegTech promises a way out of manual processes and patchwork systems. It offers automation, real-time monitoring, and analytics to make compliance smarter and faster. But adoption remains inconsistent.

Here are five concrete steps organizations can take to boost RegTech adoption and modernize their compliance frameworks.

1. Modernize Legacy Systems Incrementally

Many organizations remain stuck on legacy IT systems. These systems were not designed to handle today’s volume and complexity of compliance data. Gartner reports that 70% of companies rely on legacy infrastructure that creates silos and hinders integration. Trying to rip and replace these systems is costly and risky.

A better approach is incremental modernization. Firms can start by deploying modular RegTech solutions to automate specific compliance functions such as identity verification or transaction monitoring. These modules integrate with existing platforms and allow gradual migration. This approach spreads costs over multiple phases, reduces operational disruption, and builds confidence before full rollout.

Leading firms initiate pilot programs in areas with high manual effort or risk. They scale successful pilots across regions or business units. This stepwise transformation aligns technology upgrades with compliance priorities.

2. Elevate Data Security Standards

Handling sensitive data is at the core of any compliance system. RegTech platforms deal with personally identifiable information, transaction details, and internal investigations data. Any breach risks heavy fines and loss of trust.

Recent cyberattacks on financial institutions illustrate the growing sophistication of threats. Regulators are increasing their scrutiny on data protection practices. Organizations must implement strong encryption protocols, multi-factor authentication, and granular access controls. Regular security audits and penetration testing identify vulnerabilities before attackers do.

Data governance must also be rigorous. Clear policies around data storage, sharing, and retention reduce insider risks and ensure regulatory requirements are met. Providers and users of RegTech solutions should collaborate. They need to embed security by design. This ensures protection is not added after deployment.

3. Build Stronger Collaborations With Regulators

Regulations are complex and evolve quickly, creating uncertainty for compliance teams. Collaboration with regulators can ease this burden and accelerate RegTech adoption.

Regulatory sandboxes were pioneered in the UK, Singapore, and other hubs. They provide a controlled environment to test new RegTech innovations without full regulatory risk. Firms learn how their solutions align with requirements, and regulators gain insights into emerging technologies.

Ongoing dialogue also allows for early identification of regulatory changes, helping compliance teams adapt faster. Some regulators even issue guidance or develop shared standards based on these engagements. This cooperative approach benefits all parties by lowering costs and improving compliance outcomes.

4. Opt for Scalable, Cloud-Based Solutions

Budget constraints are a significant barrier to RegTech adoption. A Deloitte survey in 2024 found that 45% of compliance officers cite cost as the main obstacle. Traditional on-premises systems often require large upfront capital expenditure and ongoing maintenance costs.

Cloud-based RegTech platforms offer a flexible and scalable alternative. Subscription pricing allows firms to pay for what they use, with lower initial investment. Cloud solutions simplify deployment across multiple jurisdictions and business units.

The ability to scale up quickly means firms can respond to growing compliance demands without costly infrastructure upgrades. Cloud also facilitates continuous updates, ensuring software stays current with changing regulations.

Smaller firms especially benefit from cloud platforms, which make advanced compliance technology accessible without massive budgets.

5. Demand Interoperability and Flexibility

Compliance involves multiple teams and systems, from onboarding and transaction monitoring to case management and reporting. Without seamless integration, data silos and duplication slow investigations and increase errors.

Interoperability is critical. RegTech solutions should offer open APIs and support common data standards. This enables data to flow smoothly between tools and across departments.

Flexibility is also key. Compliance teams often face changing regulatory requirements or expanded business models. RegTech platforms must scale with increased data volumes and support multiple jurisdictions.

Organizations should test new RegTech tools in real-world environments. This ensures they work well with existing systems. It also allows adaptation to future needs.

RegTech Is Essential for Modern Compliance

RegTech is quickly becoming a must-have for firms looking to manage compliance efficiently in a complex regulatory world. With global compliance costs rising and enforcement ramping up, the cost of delay is high. Organizations can modernize legacy systems step-by-step. They should prioritize robust data security and build partnerships with regulators. Embracing scalable cloud platforms is essential. Insisting on flexible, interoperable solutions is crucial as well. This approach allows organizations to build a compliance framework that is both resilient and efficient.

Getting started does not require a full overhaul overnight. Piloting a single RegTech solution in a high-impact area today can create momentum for broader transformation. The goal is to free compliance teams from routine manual work. They should be equipped with real-time insights and tools to manage risk effectively.

The time to move is now. The regulatory environment will only grow more demanding, and RegTech offers the best chance to keep pace.