Remaking Risk: A Taxonomy of Regtech
Financial institutions that recognize the limitations of existing risk operations and the potential of advanced technology to address these problems are actively engaging with regtech providers.
The specialized technology that supports risk management functions has traditionally been supplied by internal development teams as well as by external software developers and systems integrators. These two traditional sources of technology are now being joined by a third: regtech startups. Regtech already comprises a vast and rapidly changing landscape, backed by significant VC and private equity investment.
To help financial institutions systematically approach this complex market, Celent has devised a method for positioning regtech providers in the context of the broader risk management technology market. It is intended to aid financial institutions seeking to navigate the crowded regtech marketplace, benchmark their internal risk technology against modern capabilities, and identify specific risk initiatives that can benefit from regtech inputs.
Celent's regtech taxonomy is built on three axes:
- Technology frameworks, grouped into three evolutionary stages.
- Regtech building blocks, consisting of four key technologies typically used by regtech startups.
- Risk management functions, classified into nine high-level areas in financial and operational risk, financial crime compliance, and suptech.
Celent examines how these 16 elements can be used to define the risk solutions provided by regtech startups on the one hand and incumbent providers on the other. We also show how regtech technology can be applied to intractable risk functions including regulatory reporting, GRC and regulatory change management, compliance and conduct, financial crime compliance, and model management.
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