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Regtech Rising

Need help navigating the quickly evolving regtech market? Get some clarity here.

In our last regtech post, we talked about the lagging adoption of regtech versus fintech despite a prolific regulatory environment. “To date, [regtech] adoption has been strongest where it has been supported by legislative initiatives that punish non-compliance with large fines or criminal sanctions, and that favour high data volumes and prescriptive data taxonomies.” Anti-money laundering (AML) and transaction reporting, know your customer (KYC), and regulatory reporting are functional areas where regtech adoption is highest. New asset classes like cryptocurrencies and Decentralized Finance (DeFi) are accelerating the pace of regtech development.

Regtech tools

Source: The Global RegTech Industry Benchmark Report

What's Going on with Regtech Adoption?

So what are the primary factors for adopting regtech? According to a 2019 University of Cambridge report, there was no dominant reason for adopting regtech.


Source: The Global RegTech Industry Benchmark Report

And yet the same report found that industry forecasts expect “year-on-year growth of between 23% and 25% between 2018 and 2023.” To date, most of this growth has been in banking-related regtech, with up to 94% of vendors tailoring their products to banks. Additionally, about 49% to 68% of vendors offer products to other fintech companies.

The data suggests that there is a disconnect between founder and investor sentiment on the future of regtech and its actual adoption by firms. At some level, this is not surprising since heavily regulated industries, such as financial services, tend to move slowly when it comes to innovation. Additionally, most of today’s compliance officers cut their teeth in the service industry and have little experience building, evaluating, and implementing new technology. Investors, however, believe that technology will play a central role in the future of compliance. And regtech’s earlier entrepreneurs agree.

As we’ll see below, market entry by regtech startups peaked around 2019. Since then, the venture capital industry is focused more on backing existing regtech companies as opposed to new entrants.

What Do Market Statistics Reveal?

When it comes to fundraising, “only 5% of all vendors have raised more than $50m, about half have raised less than $1.6m, and over a quarter have received no formal external funding.” These numbers are not surprising given that most regtech companies are still startups or small businesses. For vendors that have raised money, the average amount raised in the first round is $1.5 million (although 33% of these firms raised less than $500,000), while the average raised over two rounds is $6 million.


Source: The Global RegTech Industry Benchmark Report

Although the amounts per round appear low, RegTech Analyst notes that “[t]here has been a shift in the RegTech landscape between 2015 and 2019 from investors predominantly backing smaller deals, towards participating in more later-stage transactions.” Together, these data sets suggest that more funding is going to fewer deals and most of those deals are to mature regtech companies. Given the age of the regtech sector, this is not surprising as there are enough firms that are more than five years old and have already established product-market fit and successful products and business models.


Overall, “RegTech startups are experiencing growth and investment at almost the same rate as the FinTech industry.” In a recent article titled “Is 2022 Going to Be the ‘Year of the RegTech?’” Ron Finberg, Director of Global Regulatory Reporting Solutions at IHS Markit, explained to Finance Magnates that “[y]ou can look at 2021 as the year that Regtech became mainstream and virtually every large financial firm had contracted or was in deep discussions with regtech firms with their services.” In 2018, $18 billion was being spent on regtech platforms globally, although this amount was projected to increase to $115 billion by 2023. At the time, most regtech spending related to data protection, because of the recently passed GDPR and CCPA regulations and increased rules around KYC. In 2021, only $33 billion was spent on regtech globally, although the amount was expected to increase to $130 billion by 2025. In other words, the rise of regtech has been trumpeted before, with muted results.

From a product perspective, the development of regtech has been diverse, as illustrated below. Regtech tends to perform best in areas where a high volume of information needs to be gathered and analyzed quickly (e.g., KYC and AML or trade compliance). Advancements in machine learning technology, particular natural language processing, have been a strong driver of regtech over the past few years.


Source: The Global RegTech Industry Benchmark Report

Where Do We Go from Here?

So what can we deduce from the market statistics surrounding regtech? First, regtech is heavily concentrated in the U.S. banking industry, which accounts for 62% of regtech development. This means that most of the future growth in regtech is likely to occur in other areas of financial services and other industries. Second, and perhaps most important, investors are strong believers in the future of regtech, as evidenced by the continued investment in this sector.

In our next post, we’ll talk about how regtech is affecting the legal industry, a traditional service provider to regulated industries such as financial services. 

This post is part of a series originally published on FinTech Blog and inspired by Bo’s panel presentation at the American Bar Association’s 2022 Business Law Section Spring Meeting.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Bo Howell

Bo has been the CEO of Joot, a fintech company, for over three years. He has helped design, develop, and implement technology in the financial services sector. Bo has over 10 years of experience as a securities lawyer and chief compliance officer.

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