An Overview of Opportunities and Challenges for RegTech Startups

As the RegTech market keeps growing, the opportunity for innovators, entrepreneurs and investors in this sector is running full tilt. The total funding for RegTech in HI 2021 exceeded $9.2 billion globally. And 82.3% of RegTech startups experienced sales growth.

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A product created for the sake of solving an interesting problem, which doesn’t take into account what your target market wants is bound to fail.

Expanding Opportunities for RegTech Startups


Along with market size, advancements in technologies such as ML and DLT, and open source frameworks such — as the Regulatory Genome Project and the Linux Foundation’s Open RegTech Initiative — are helping entrepreneurs and innovators build cutting-edge solutions in this space.

RegTech solutions are helping financial institutions comply with regulations such as GDPR, MiFIDII, 4MLD, PSD2 (Open Banking) and more. No wonder stakeholders within bank digital transformation projects are also eager to work with new RegTech firms, resulting in increased market penetration.


The COVID-19 pandemic drove the need for digital transformation even as regulators kept pushing for transparency and accountability from financial institutions. These two factors culminated in the rise in the adoption rate of RegTech solutions last year.


As financial institutions journey on the path of digital transformation, adopting virtual regulatory clarification services, digital identity initiatives, and electronic customer onboarding will become more commonplace.


And as cyber threats and financial crimes continue to grow, RegTech companies that address these problems with their solutions stand a greater chance of success.

Challenges Facing RegTech Startups

In the first phase, RegTech companies had a tough time scaling, integrating with legacy systems and meeting timelines. As RegTech enters its second phase, entrepreneurs and innovators in this space are expected to work collaboratively with domain specialists, banks and regulators to avoid previous complications.

Hence, to forge lasting relationships, RegTech entrepreneurs have to:


  • Understand third-party risks from the banks’ perspective
  • Outline the value proposition of their unique solution simply and compellingly
  • Demonstrate how their solution solves a defined banking problem
  • Validate solution through other client relationships and demonstrate credibility
  • Prove their solution is scalable and usable across international markets and sectors


Barriers to Adoption That RegTech Startups Have to Overcome


How customers perceive a brand and its product determines sales, profit and success. Startups need to imprint their new product in the minds of their customers in a way that aligns with their goals. A product positioning strategy needs to include market and competitor analysis, competitor’s product positioning and defining the position of a new product in the market and communicating the brand’s image. Some of the key steps to positioning a new product include:


  • Lack of buyer education and awareness


  • Constraints imposed by legacy technology


  • Long procurement cycles


  • Lack of data standards and interoperability


  • Hesitancy of regulators to promote RegTech solutions

RegTech Has an Awareness Problem

Surveys have shown that businesses are still grappling with the fundamentals of RegTech, including how it differs from FinTech and its role in supporting organisations to achieve better compliance. The lack of awareness around RegTech has significantly weighed down its adoption.

But those RegTech startups that can overcome these barriers will undoubtedly emerge as big winners and stand to gain significant market share.


Sooner or later, all financial institutions have to leverage RegTech to meet compliance demands. In April 2020, the Financial Action Task Force (FATF) — the global oversight body for anti-money laundering and counter-terrorist financing — issued a statement warning of the growing financial crime and fraud risks resulting from increased digitisation due to the pandemic. The FATF ordered increased vigilance to mitigate these risks and explicitly stated that it “encourages the use of technology, including Fintech, RegTech and SupTech to the fullest extent possible.”

Join the Cambridge RegTech: AI for Financial Regulation, Risk, and Compliance programme to deep-dive into the opportunities for RegTech startups, understand the technologies driving this sector and create a unique RegTech solution with commercial potential.

Cambridge RegTech: AI for Financial Regulation, Risk, and Compliance Programme is delivered as part of a collaboration with University of Cambridge Judge Business School and Esme Learning. All personal data collected on this page is primarily subject to the Esme Learning Privacy Policy.


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