The returns include trust
Deborah Young MAICD
Global RegTech SupTech Industry Leader | CEO | Australian and Global Advisory Boards | Advisor
Why Australian RegTech?
On one hand, RegTech, which applies technology to improve how businesses manage regulatory compliance, is in a position of strength. Australia is the world’s third largest RegTech hub today, behind only the US and the UK. Over 10 per cent of all RegTechs worldwide are currently headquartered in Australia.
Compare Australia with its 80 established RegTech companies to markets like Canada and Singapore, with 26 and 21 RegTechs, respectively. Since 2015, growth in the Australian sector of 15 per cent has significantly outpaced global growth of 6 per cent.
The RegTech Association has seen a keen and increased interest from government, regulators, financial institutions and key regulated sectors as they seek RegTech solutions to address their most pressing problem statements and ensure that they can procure from the best the market has to offer and to deliver the all important trust back to the community - even more important during this COVID-19 pandemic.
Furthermore, surveys of RegTech Association members during the pandemic assessing the impacts on their businesses have shown jobs growth during the period as well as indications of more buyer confidence.
On these metrics, the RegTech sector is strong.
But what's missing?
But on the other hand, namely investment in Australian RegTechs, the picture is nowhere near as positive. A report into the RegTech landscape, produced by The RegTech Association and Boston Consulting Group, Expand Research has found a worrying decline in investment and Australia lagging comparable markets for investment.
For those unfamiliar with the sector, RegTech solutions aren’t just about satisfying bureaucratic red tape. RegTech allows businesses to make better business decisions through having access to superior data analytics, risk management information and reporting. This could come in the form of technologies such as Natural Language Processing, Artificial Intelligence or Blockchain that are packaged into solutions solving for financial crime, counter-terrorism financing, digital identity, verification, reporting, risk management and a myriad of other applications. RegTech can be applied to regulated industries outside of financial services as well including Telco, Energy and Healthcare, making it a highly versatile range of solutions benefiting a wide sector of the economy. This was recognised in the Productivity Commission information paper on RegTech, source below.
Despite these vital applications, investment in local RegTechs has declined by 50 per cent since 2018, according to the report. At the same time, RegTech investment around the world has hit record levels, climbing from $769 million to $1.386 billion in 2019.
Over the same period, Australian investment went from $32.7 million to $16.4 million.
Today, only 1 per cent of the global investment in RegTech is in Australian companies.
The funding mix in Australia skews towards early stage seed and angel investments. This contrasts with international trends, where the funding mix is more balanced across early stage funding and subsequent series.
In Australia, it is the founders themselves, angels and high net worth individuals funding RegTechs. Venture capital is prevalent in other markets, but not in Australia.
The decline in funding for RegTechs is in line with investment in innovation overall. In 2020, Australia was ranked #23 on the Global Innovation Index, down from #20 in 2018. As a result, growth and innovation in Australia’s RegTech industry has outstripped funding.
Insufficient funding opportunities risk leaving Australia’s RegTech companies at a disadvantage, constraining product innovation and their ability to scale.
In a less than promising investment landscape there are opportunities for the public and private sectors to support Australia’s RegTechs by becoming RegTech clients and by creating awareness and collaboration opportunities.
What can be done?
The RTA/BCG report found other much-needed advances would be for authorities to divert a small proportion of penalties and fines for compliance failures into funding RegTechs and establishing grant programs for immediate access to funds. This recommendation concurs with the RegTech Association’s view that facilitating access to funding by establishing ‘patient capital’ funding pools with long-term perspectives, and grant programs that support high quality RegTech firms is probably to scale-up is very badly needed.
Creating specialised capital vehicles from private equity and superannuation funds to co-invest with such a patient capital vehicle would also help to rebalance investment in an otherwise strong Australian RegTech sector.
The role of Government as a buyer and influencer of RegTech should not be underestimated in creating confidence around Australia’s RegTech capability and the resulting investment. We continue to be encouraged by supportive comments by the Prime Minister of Australia about RegTech, Senator Andrew Bragg, the Senate Select Committee on FinTech and RegTech, the work of newly anointed Minister, Jane Hume expanding to digital economy in her portfolio, and the recent Productivity Commissioner information paper on RegTech showing that the sector is on the economic radar.
What are the levers?
Final submissions were due in December 2020 to the Senate Select Committee for FinTech and RegTech. This enquiry was established in 2019 to assess the barriers and opportunities for RegTech and will hand down its final report in April 2021. The RTA made a follow up submission in December 2020, as a supplement to the two earlier submissions and our hearings with the Committee in 2020. Our key focus is on this issue of investment.
The RegTech industry can – and is - helping financial and other institutions understand the benefits of the sector by coordinating industry-wide forums and benchmarks to address the investment deficit.
There’s more work to be done and The RegTech Association will offer everyone to be part of the conversation as we unpack these issues and more at our global #ACCELERATERegTech2021, Re-imagine from full stop to future program in March 2021. We have removed barriers to entry from our programs by making them all complimentary and we are partnering with a number of our sister organisations globally to support this program. This is not a commercial conference. The program was developed by practitioners from the industry, for the global industry to discuss, provoke and be the global catalyst for change. The program over 4 global streams aims to drive vital conversations and tackle both the challenges and to show the potential of what's possible. Microsoft is the platinum sponsor who are now joined by stream sponsors Commonwealth Bank, Australian Government and KPMG as well as many others. More details www.regtech.org.au/accelerate2021
Next time: A global RegTech language and why this is so critical
Learn more: www.regtech.org.au
Author: Deborah Young is the Australian based CEO of The RegTech Association, a non-profit community of 150 organisations committed to the acceleration of RegTech adoption and creation of a global centre of excellence for RegTech. Deborah advocates for and educates the eco-system on RegTech, looks to opportunities for expanding markets for RegTech and promote investment opportunities. She works closely with her global counterparts to promote a global RegTech language.
Sources:
Productivity Commission Information Paper on RegTech - October 2020
All RegTech Association submissions to Senate Select Committee on FinTech and RegTech here
Innovation and Growth | R&D | Production and Quality Specialist
3 年Thanks, That's a great article,
Co-Founder @ DX Compliance
4 年Great article !