Technologies such as artificial intelligence and machine learning can enable companies to move from big data to ‘smart data’ to gain insights into their own regulatory practices. They can automate complex reporting, conduct meaningful analysis of critical compliance risk areas and significantly broaden coverage with a relatively low investment.

Where will these applications come from? Startups are mushrooming and financial services companies have become more active in developing processes and protecting their intellectual property. Leading financial institutions have applied for more patents on an increasingly impressive range of innovative products. However, many in-house innovations still focus on products and services rather than RegTech – and the financial sector lags way behind the big technology companies.

We note in this report that the world’s 15 largest banks together own five times fewer fintech patents (4,697) than the biggest single technology company (23,864). In addition, technology companies’ patents are not restricted to consumer-friendly innovations: they include credit checking, security and authentication, among others.

Companies should view RegTech as part of the wider digital transformation process that the industry is grappling with. While most institutions have built digital front-ends for their businesses, particularly in consumer-facing markets, these are built on legacy systems. Digital transformation requires a rethink of the whole business model and a redesign that spans the middle and back office as well as the front office – including risk and compliance.