There’s something almost farcical about the idea of selling RegTech (regulatory technology) to financial institutions. It’s like trying to sell a gym membership to someone who’s already hired a personal trainer, booked five classes and bought the lycra.
And yet, many still manage to dodge the treadmill.
Why? Because typically financial institutions already have layers of compliance processes, teams and tools (although they may not be designed for purpose) but are failing to manage their regulatory compliance and obligations efficiantly.
The reality is, for all the breathless enthusiasm about innovation and digitisation, the financial sector can be staggeringly resistant to new compliance technology. You’d think, after the small matter of the 2008 global financial crisis, a few billion in
fines and regulatory frameworks so tight they could double as corsets, banks might be queuing up to automate their obligations. But here we are.
So, the question becomes, carrot or stick?
The carrot, of course, is the dream. A sleek, intuitive platform that integrates with legacy systems without so much as a polite cough. Dashboards that make regulators weep with joy. Real-time insights. Reduced human error. Better sleep for compliance officers.
If this all sounds a bit too good to be true, that’s because, in practice, it often is. But the promise of a frictionless future is seductive and it’s what many RegTech firms lead with.
And to be fair, some financial institutions are all ears. Usually the smaller, nimbler ones. The challengers. The ones that don’t have five internal committees vetting every software purchase like it’s a nuclear treaty. These players tend to respond well
to carrots. They see RegTech as a competitive advantage, as a way to grow without tripping over their own compliance requirements. However, it is very possible that they do not have deep enough pockets.
And then there’s the stick.
And by stick, I mean the regulator.
Sometimes, the only thing that shifts a bank from “we’re exploring options” to
“we signed yesterday” is a supervisory nudge, or better still, a headline grabbing enforcement action against a competitor. The stick works. It’s brutal, but it works. No one wants to be the next cautionary tale especially when reputations are on the
line.
This creates a strange dynamic as RegTech vendors become translators, therapists and occasionally prophets. They have to understand not only the pain points of compliance, but also the politics of procurement, the fear of transformation and the psychological
warfare that comes with regulatory pressure. No wonder so many pitches feel like a cross between a TED Talk and a crisis intervention.
And then there’s the unspoken truth; that sometimes the tech isn’t quite ready. Or it’s brilliant, but no one internally knows how to use it. Or it’s been designed in a vacuum, with no regard for actual workflows. In these cases, both carrot and
stick are useless, because the solution is not fit for purpose in the first place.
So what’s the answer? Perhaps it’s not carrot or stick. Perhaps it’s carrot, stick and a side of empathy. The most successful RegTech implementations emerge from deep conversations between the tech creators and the compliance veterans. They take
into account the everyday messiness of financial services. They didn’t promise magic. They promised progress.
And maybe that’s what we need more of. Not the hard sell. Not the regulatory panic. But the quiet confidence of people who’ve been in the trenches, who understand that the best technology doesn’t just check a box, it changes the culture.
Now, where’s that carrot?
