The Evolving Role of RegTech in Oversight and Compliance

Regulatory Technology, or RegTech, refers to the use of technology to enhance and streamline regulatory compliance processes in various industries. Over the years, RegTech has evolved significantly, driven by the need for efficient and effective solutions to navigate the complex and ever-changing regulatory landscape. This innovative field combines the power of technology and regulatory compliance to streamline financial processes, enhance transparency, and mitigate risks. The evolution of RegTech in Africa has been shaped by the unique challenges and opportunities faced by the region.

The Birth of RegTech

James Claude, the CEO of Global Voice Group – a regulatory technology developer working with governments across Africa  since 1998 says, “In the late 80s and early 90s as telecommunication companies became the backbone on which other services started to be provided and long before the term Regtech was ever coined, our company began supporting the telecom regulators and other Government agencies in their mandate to monitor compliance in their respective sectors, through the use of digital technologies. This happened as a result of the liberalization of the telecom market. There was a market gap to provide data -driven technology services to the newly created regulatory agencies and GVG was among the few companies which identified this need and pioneered this approach towards data technologies.”

One of the primary areas where RegTech made an early impact was regulatory reporting and data management. Traditional reporting processes were often time-consuming, error-prone, and resource-intensive. RegTech solutions introduced automation, advanced analytics, and data visualization tools to simplify and accelerate reporting, ensuring accurate and timely submission of regulatory data.

Mr. Claude adds that, “The initial stage of RegTech involved the development of specialized software solutions to automate compliance tasks, improve data management, and facilitate reporting. Recognizing the need for localized solutions, RegTech providers began tailoring their offerings to meet the specific compliance requirements of African countries, taking into account cultural nuances, languages, and regulatory frameworks”.

RegTech’s initial focus in Africa was on improving regulatory reporting processes and enhancing financial inclusion. RegTech solutions helped financial institutions and regulatory bodies automate data collection, analysis, and reporting, ensuring compliance with regulatory requirements in a more efficient and cost-effective manner. By streamlining reporting, RegTech played a crucial role in expanding financial inclusion, as institutions could provide services to previously unbanked populations while adhering to regulatory obligations.

RegTech’s Impact on Risk Management and Fraud Detection

As financial crimes and fraud posed significant challenges to Africa’s financial systems, RegTech solutions evolved to address risk management and fraud detection. Big Data analytics, machine learning, and artificial intelligence were integrated into RegTech platforms, enabling real-time monitoring and identification of suspicious activities. These technologies empowered regulators and financial institutions to proactively detect and mitigate risks, enhancing the stability and integrity of the financial ecosystem.

A prime example can be found in Rwanda where the regulator, the Rwanda Utilities Regulatory Authority (RURA), utilized RegTech to combat fraud and boost revenue generated by international calls. By implementing RegTech solutions, RURA witnessed a significant 122% increase in international traffic revenue within the first year. Over ten years, the regulator’s revenue from ICT increased by an impressive 250% through the integration of complementary RegTech solutions.

On working with governments in Africa, Mr. Claude adds that, “together with The Ghana Revenue Authority (GRA) and the National Communications Authority (NCA), we have implemented RegTech to boost revenue collection and compliance in the telecom sector. Through the adoption of RegTech, Ghana saw a 36% increase in revenue from 2021 to 2022. Additionally, taxes paid by the telecom industry rose by 18% in 2021 compared to 2020, further strengthening compliance and financial governance. This is an excellent depiction of the impact of RegTech for African countries”.

RegTech’s evolution in Africa has also focused on combating financial crimes, including money laundering and terrorist financing. Regulators and financial institutions have turned to RegTech solutions to enhance their anti-money laundering (AML) frameworks through automated transaction monitoring, customer due diligence, and Know Your Customer (KYC) processes. These technologies assist in identifying high-risk activities, improving compliance with AML regulations, and safeguarding the integrity of the financial system.

It has also had an effect on revenue mobilization efforts. A low tax-to-GDP ratio indicates that the government is collecting a smaller share of revenue compared to the overall economic activity and through leveraging on measures such as advanced data analytics and artificial intelligence (AI) techniques to identify potential tax evasion, fraud, or non-compliance, Regtech can help tax authorities identify high-risk taxpayers, suspicious transactions, and potential tax gaps. This can lead to improved compliance and increased tax revenues.

The Future of RegTech in Africa

The future of RegTech in Africa holds immense potential for further advancements. Breakthroughs can be expected in key areas, including data privacy and protection; regulatory standardization; cloud computing and infrastructure; and regulatory technology building and capacity building.

RegTech will play a pivotal role in helping organizations comply with evolving data protection regulations, ensuring the responsible handling and secure storage of customer data. Additionally, when it comes to regulatory standardization, efforts will be made to harmonize regulatory frameworks across African countries, enabling interoperability and facilitating seamless compliance processes.

To fully leverage the potential of RegTech, there will be a focus on education and capacity building programs. Training initiatives will equip regulatory professionals, compliance officers, and industry stakeholders with the necessary skills to effectively implement and utilize RegTech solutions.

On this, Mr. Claude adds, “the future of RegTech on the African continent is very promising. More governments and regulators are actively pursuing the development and implementation of RegTech solutions, and the continued evolution and adoption of technology will make it easier for this to be achieved. We expect to see the next 25 years of our time in the industry bring with it refinements in the sector and the benefits of RegTech implementation being felt across the continent, bringing with it improved revenue mobilization, assurance, compliance and oversight”.

In conclusion, the evolution of RegTech in Africa has brought about significant advancements in regulatory compliance, risk management, and financial crime prevention. The localization of RegTech solutions has enabled African countries to overcome unique challenges and meet specific compliance requirements. With ongoing collaboration between regulators, industry players, and RegTech innovators, the future of RegTech in Africa holds great promise. As the continent continues to embrace technology and regulatory innovation, RegTech will play a pivotal role in driving efficiency, transparency, and financial inclusion while ensuring compliance with evolving regulations.