A government trade and innovation agency has launched findings of the technological divide in regulatory compliance pans out in our region.

In the Asia Pacific region (APAC), technology to digitalize the management of regulatory processes in the financial industry—regtech—is useful in bridging the divide between developed and developing economies in the region.

Due to the current COVID-19 pandemic, the demand for the regtech solutions in the region has naturally been accelerated. The global regtech market is expected to grow from US$6.3bn in 2020 to US$16bn by 2025, with APAC expected to have the highest growth rate over this period.

The projected growth of the sector is in tandem with the booming fintech scene in the region, particularly in South-east Asia which saw an estimated US$1bn worth of investments in 2019.

Varying levels of regtech takeup

While APAC is home to some of the world’s major financial centres, the non-homogenous region shows varying levels of market development.

In developed economies such as Hong Kong, Singapore, Sydney and Tokyo, regtech uptake is driven by a sophisticated financial ecosystem and a complex regulatory environment. The need for governance and accountability, the emergence of new market participants and security concerns arising from disruptive technologies such as AI and distributed ledger technology give regulatory impetus for regtech adoption.

This contrasts with developing economies where regtech uptake is driven by the sector’s promise in helping to create financial inclusion. Uptake is also reliant on business cases and under-resourced regulators in these markets. Market interest for regtech solutions in these economies therefore not as strong as that of their developed counterparts. This can be attributed to regulatory inertia and a marked difference in fundamental behaviours and attitudes towards regtech.

However, developing economies stand to mature over time: technology ecosystems in developed and developing economies will continue to evolve at an increasingly varying pace, given differing regulatory drivers for regtech adoption. This is especially evident in as the pandemic further reinforces differing domestic priorities and exacerbates the economic and technology gap in APAC.

These findings are part of a State of Regtech in APAC report by Enterprise Ireland, the Irish government’s trade and innovation agency. The report provides the most comprehensive, independent analysis available on the adoption of regtech across Australia, Mainland China, Hong Kong, Indonesia, Japan, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.

Summary of regional findings

At the launch of the report, Ireland’s Minister of State for Financial Services Sean Fleming said: “As Minister with responsibility for International Financial Services, I want to consolidate and accelerate our position as one of the world’s leading locations for fintech and regtech development. I look forward to working with the Enterprise Ireland firms and their partners in Asia as together they deliver value and bring innovative responses to global compliance challenges.”

Some insights from the report’s overview include: 

  • Pandemic impact
    The global health crisis accelerated the transition to digitalization of financial services, particularly in the regulatory, risk and compliance sectors. 
  • Rise in compliance costs
    The projected combined cost of anti-money laundering compliance across Indonesia, Malaysia, the Philippines, and Singapore is estimated at US$6.09bn annually, with more than half of it in Singapore.
  • Impact of regulators
    Country-specific regulators have the most impact on regulatory compliance, but Singapore’s regulators also have substantial impact across APAC study countries.
  • Regtech adoption
    Progress in regtech solutions in developed APAC countries is starting to gain speed, driven by regulators’ need for greater oversight and a tighter regulatory environment.
  • Promising areas for regtech
    Market and industry drivers such as the rise of digital banks, peer-to-peer lending, digital assets and remote onboarding present an opportunity for regtechs to fill the need for specialized solutions.
  • Regulatory flux
    Changes in regulatory stance puts increased focus on compliance and the need to use new technology to meet standards more efficiently and effectively.
  • Roadblocks and challenges
    Long sales cycles challenge regtech adoption in developed APAC while regulatory inertia and lack of proper regulatory processes can hinder regtech adoption in the region.