In the world, where trust is the leading currency, we trade with data more than with goods. Information is the new gold: companies use it to better understand our spending habits, desires, and needs. In the data-driven reality, our every move is tracked, privacy is a scarce good, and thieves may be more interested in your digital wallet than your purse. In turn, cybersecurity and privacy have become important issues to tackle in order to encourage technological innovation without compromising human rights to protect personal information. There are numerous legislations regulating the way our data is traded and protected, but with the increasing digitalization of the web, ensuring cybersecurity is becoming more difficult than ever. Financial institutions and online shops, which use data to drive results, are especially threatened by cybercrime, as they collect sensitive data, such as credit card numbers, and addresses. A data leak is enough to jeopardize someone's life and finances, so protecting information has become companies' #1 mission. The rising number of data-related regulations carefully addresses the security issues, but the abundance of security guidelines makes compliance extremely difficult and time-consuming. That's exactly why RegTech, or Regulatory Technology, may be the answer to the world's struggle with privacy protection, as it allows companies to easily guarantee data protection and legal compliance with the help of modern technology. How does RegTech impact the process of ensuring data privacy and security in businesses and institutions?
The ever-growing number of regulations and skyrocketing costs of legal compliance encourage RegTech’s dynamic market expansion with a projected 20% annual growth rate for the next 5 years. In fact, the industry’s future is truly promising, given that the RegTech market is expected to grow from 6.3 billion US dollars in 2020 to 16 billion US dollars by 2025. What are RegTech’s main applications? RegTech companies focus mostly on Regulatory Reporting, Compliance, Risk Management, Identity Management & Control, and Transaction Monitoring, using machine learning, natural language processing, AI and blockchain to solve complex issues, improve internal business processes, and decrease costs of legal compliance. How can RegTech guarantee higher standards for data privacy and cybersecurity? To meet data privacy and security standards, one has to understand the content of legislation and its correspondence to a company’s practices. It is extremely expensive and time-consuming to ensure legal compliance and numerous financial institutions and enterprises have no idea how to accurately identify its obligations to the General Data Protection Regulation (GDPR), risking both hefty fines and data breaches in the process. To put things into perspective, in 2017 researchers claimed that since 2009 banks in the US and Europe had been fined for 342 billion US dollars for the lack of legal compliance, and the number would reach 400 billion US dollars by 2020. For comparison, Ireland’s GDP in 2018 was 382,5 billion US dollars, which shows that a failure to ensure legal compliance costs a fortune. What’s the RegTech magic recipe for legal compliance? RegTech technology allows for fast and accurate analysis of legislation’s correspondence to your business’ nature, processing thousands of regulations with the help of machine learning and natural language processing. It significantly reduces the costs of legal compliance and makes the process of adopting international products and services easier. Legal frameworks across the world vary, so meeting different legal requirements is a complicated process and RegTech technology’s help significantly eases the workload necessary to operate on the global market. Although RegTech’s popularity is the highest among the financial institutions, it is slowly finding its way into non-financial institutions, where it helps to meet requirements of increasingly complex regulatory architecture. In highly regulated industries, such as telecommunications, financial services, mining, securities, energy, and insurance, RegTech is a miracle answer to problems arising from the lack of legal compliance. For example, enterprises, which process credit card payment, and fail to comply with the Payment Card Industry Data Security Standard (PCI DSS), may lose their license to offer such payment options until they have met their legal obligations. For enterprises, such a turn of events results in enormous financial losses and a tarnished reputation. Additionally, legal compliance with security regulations minimizes the risk of data breaches, which are companies’ worst nightmare, costing an average of 3.92 million in dollars, and customer trust. Legal compliance aside, RegTech is extremely effective in fraud-prevention, as it implements advanced anti-fraud screening and detection methods to minimize the risk of ID theft. With careful two-way authentication processes and standardized systems to protect Know Your Customer (KYC) data, RegTech responds to challenges regarding cybersecurity in the 21st century. The protection of KYC data is essential, as it contains extremely sensitive personal information, for example, bank account details, telephone number, birth date, address, or biometric information. In the wrong hands, such information can be used for scams, ID thefts, and other crimes, which makes data protection an absolute necessity and legal obligation, which cannot be compromised. One of the top global RegTech players using AI for fraud protection is Switzerland’s NetGuardians. The company integrates existing security systems, collects data in real-time, and processes information to detect policy violations, suspicious activity, and hackers’ attacks on the system. With the help of AI, it is possible to prevent data breaches before they happen, which saves companies’ finances, reputation, and future.
Another way that RegTech encourages data protection and cybersecurity is through regulatory technologies developed to integrate data protection with territorial laws: hybrid cloud computing, cryptography, cloud security, mobile security, advanced authentication, and biometrics. Experts believe that with the help of cloud technology, institutions can make a great step towards the digital world, bringing more automation to the existing architecture, cutting human workload, and lowering operational costs. Until now, cloud storage was not an option for institutions, as it could not guarantee the full security for sensitive data, but the development of RegTech is a promise of a secure cloud-based future. Last, but not least of RegTech’s superpowers is money laundering prevention, which predicts and prevents situations, in which enterprises can be used for money laundering. It is worth mentioning that gigantic global enterprises notice RegTech’s potential: in early 2020, Visa invested in Very Good Security (VGS), the fintech company, enabling companies “to collect, protect, and exchange sensitive data”. They called it an investment in “a better approach to data security, privacy, and compliance”. Indeed, innovation is everybody’s latest direction.
All in all, RegTech’s development is a step towards the world, in which data privacy and security are not concepts to explore, but standards to adhere to. Designed to ensure legal compliance, prevent ID theft, fraud, and money laundering, RegTech is a promise of a secure future for our personal information and digital lives. As we enter the era of total digitalization, RegTech may save us from paying the full price on innovation, and ease our transition into the data-driven, new world.
Sources:
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https://www.pandasecurity.com/mediacenter/security/cost-of-a-data-breach/
