What's new in regulatory technology?

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The regulatory technology (RegTech) sector is experiencing unprecedented transformation as compliance teams face mounting pressure from escalating regulatory complexity, data volume explosions, and manual process inefficiencies.

RegTech solutions leveraging AI, machine learning, blockchain, and cloud automation are fundamentally reshaping how financial institutions manage compliance across AML, KYC, reporting, and operational resilience, with the market projected to reach $82.77 billion by 2032.

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What are the biggest problems that current compliance teams are facing that regulatory technology is trying to solve?

Compliance teams are overwhelmed by an unprecedented combination of data integration challenges, regulatory complexity, and manual process inefficiencies that traditional systems cannot handle.

The primary pain point is data integration and quality issues, where siloed systems and legacy infrastructure prevent real-time data consolidation and standardization across multiple jurisdictions. Financial institutions struggle with hundreds of regulatory updates annually, including complex frameworks like CSRD, DORA, MiCA, and AI Acts that strain manual update processes.

Manual, error-prone processes dominate compliance operations, with spreadsheet-driven reporting and checklists generating high error rates and low productivity. The talent and skill gap is critical, as 86% of respondents in Grant Thornton's 2024 RegTech survey feel communication between departments could be improved, while institutions lack in-house expertise in AI/ML, data science, and cloud technologies.

Real-time monitoring demands are escalating, with pressure for continuous transaction and sanctions screening replacing traditional end-of-day batch reviews. Complex sanction regimes and adverse media monitoring require dynamic risk scoring capabilities that legacy systems cannot provide, particularly given geopolitical shifts and negative media scrutiny patterns.

Which areas of regulatory compliance are seeing the most innovation right now—AML, KYC, reporting, auditing, or something else?

Anti-Money Laundering (AML) and Know Your Customer (KYC) are experiencing the most dramatic innovation, driven by AI-powered pattern detection and real-time transaction monitoring capabilities.

AML innovation centers on real-time transaction monitoring using AI-based pattern detection and blockchain for immutable audit trails. AI algorithms can analyse vast amounts of data at unprecedented speeds, detecting patterns that human analysts might miss, with institutions reporting 40% false-positive reduction in fraud detection systems.

KYC transformation focuses on AI/biometric ID verification, digital onboarding, and perpetual KYC (pKYC) - ongoing identity verification rather than one-time checks. Continuous KYC (eKYC) systems are reducing client churn and risk while enabling seamless customer experiences through automated document analysis and real-time risk scoring.

Regulatory reporting is rapidly advancing through automated regulatory intelligence, NLP for rule extraction, and integrated report-generation platforms. Audit and risk management innovation emphasizes continuous auditing, predictive risk analytics, and operational resilience tools specifically designed for DORA compliance requirements. ESG and sustainability compliance is emerging as a high-growth area with automated ESG data collection, XBRL tagging, and dynamic materiality assessments.

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Which startups are leading the way in these different segments and what specific solutions are they offering?

Leading RegTech startups are specializing in AI-powered compliance solutions, with clear segment leaders emerging across AML, KYC, reporting, and risk management domains.

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What are the most notable breakthroughs in regtech in the past 6–12 months, and especially so far in 2025?

The most significant breakthrough is the mainstream adoption of generative AI in compliance workflows, with over 73 per cent of respondents from a cross-section of industries predicting that genAI will have significant impact on RegTech over the next two years.

Perpetual/Continuous KYC (pKYC) has emerged as a game-changer, enabling ongoing identity verification rather than one-time checks, which reduces client churn and operational risk. Explainable AI and regulatory sandbox deployments are accelerating, with EU AI Act compliance driving transparent, auditable AI decision logs that regulators can review and approve.

Blockchain-backed audit trails are gaining traction for immutable transaction reporting and KYC/AML case files, providing tamper-proof compliance documentation. DORA-specific operational resilience platforms have been rapidly developed, integrating real-time testing, incident reporting, and third-party oversight within comprehensive RegTech suites.

NLP for regulatory intelligence has matured significantly, with platforms like ClauseMatch and SixClicks automatically parsing new regulations and mapping them to client policies in real-time. The integration of federated learning is enabling private sector data sharing for financial crime detection without compromising data privacy, representing a fundamental shift in collaborative compliance approaches.

Which technologies—AI, blockchain, NLP, cloud automation—are driving these changes and how are they applied in practice?

Artificial Intelligence and Machine Learning are the primary drivers, delivering 40% false-positive reduction in fraud detection while enabling dynamic risk scoring and continuous monitoring capabilities.

AI applications include real-time transaction analysis for AML compliance, automated customer due diligence for KYC processes, and predictive risk assessment combining market trends, customer behavior, and geopolitical events. Machine learning models are becoming increasingly sophisticated at reducing false positives in compliance alerts while improving pattern recognition for financial crime detection.

Natural Language Processing (NLP) automates the extraction of obligations from regulatory texts and enables continuous regulatory horizon scanning. NLP systems can automatically interpret complex regulatory documents, map requirements to existing controls, and generate compliance documentation with citations to specific regulatory sources.

Blockchain technology provides tamper-proof KYC logs and transaction audit trails through immutable ledgers. Blockchain allows customer information to be securely shared between institutions, eliminating the need for multiple verification steps while ensuring compliance with regulations, reducing onboarding time and compliance costs.

Cloud automation and APIs enable real-time integration and event-driven compliance workflows with scalable compute resources for large-scale monitoring. Cloud-native architectures support microservices-based compliance systems that can adapt quickly to regulatory changes and scale elastically with transaction volumes.

Which regtech solutions have secured major funding rounds recently, and what does that say about investor confidence in the sector?

Major funding rounds in 2025 demonstrate strong investor confidence in mature RegTech solutions, with fintech startups globally raising a combined $10.3 billion in the first quarter of 2025 — marking the highest level of funding since the first quarter of 2023.

The shift toward later-stage funding indicates market maturation, with Series B/C rounds now dominating as investors focus on proven solutions with established customer bases. Q1 2025 global RegTech funding rose 18% year-over-year to $2.3 billion, with 53% of deals above $100 million reflecting confidence in scalable solutions.

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At what stage of development are most promising regtech companies—are they early-stage, scaling up, or already established?

The RegTech industry is showing clear maturation with most promising companies concentrated in growth-stage (Series B/C) and established phases, reflecting proven market demand and scalable business models.

Early-stage companies (Seed to Series A) focus on specialized AI/ML applications, niche case-management systems, and innovative sanctions-screening technologies. These startups typically address specific compliance pain points with novel technological approaches but limited customer validation.

Growth-stage companies (Series B/C) represent the largest segment of promising RegTech firms, typically having over 100 enterprise customers and proven revenue streams. Companies like Quantexa, ThetaRay, and ComplyAdvantage demonstrate strong product-market fit with expanding international footprints and comprehensive compliance solutions.

Established companies (Series C+, Pre-IPO) include industry leaders like Chainalysis, Onfido, and Suade Labs with global operations, multi-jurisdictional coverage, and integrated compliance platforms. These companies have moved beyond single-point solutions to comprehensive platforms serving large financial institutions across multiple compliance domains.

The industry includes over 600 startups and 8,000 companies globally, with more than 550 early-stage startups and 500 companies involved in mergers and acquisitions, illustrating significant sector expansion and consolidation activity.

What challenges do regtech startups face in scaling or going to market, and what needs to be fixed to reach the next stage?

RegTech startups face five critical scaling challenges that significantly impact their go-to-market success and market penetration rates.

Legacy system integration represents the highest barrier, with implementation costs often exceeding initial software costs due to complex data mapping requirements and lengthy system integration timelines. Financial institutions' existing infrastructure creates technical debt that requires extensive customization and professional services support.

Proof of efficacy requirements demand extensive pilot programs with large incumbent institutions before broader market adoption. Startups must demonstrate measurable compliance improvements, cost reductions, and risk mitigation through documented case studies, often requiring 12-18 month pilot periods before commercial contracts.

Regulatory fragmentation across jurisdictions requires harmonizing solutions for divergent regional requirements. A single RegTech solution may need different configurations for EU GDPR, US SOX, UK FCA, and Asia-Pacific regulatory frameworks, significantly increasing development and maintenance costs.

Trust and accreditation challenges require smaller RegTech companies to demonstrate enterprise-grade security, resilience certifications, and third-party auditor endorsements. Financial institutions demand SOC 2 Type II, ISO 27001, and other compliance certifications before considering vendor partnerships.

Client education and change management represent ongoing challenges as institutions must shift compliance culture from manual to automated, AI-driven models. Training programs, change management support, and cultural transformation services become necessary components of successful implementations.

How are traditional financial institutions reacting to or partnering with regtech players—are they resisting, adopting, or acquiring?

Traditional financial institutions are rapidly shifting from resistance to strategic partnership and acquisition models, with 70% increasing API-driven integrations according to recent industry surveys.

The collaboration trend is accelerating as banks move from "build-in-house" to "buy and partner" strategies. Financial institutions recognize that internal development cannot match the pace of regulatory change and technological innovation that specialized RegTech companies provide.

Joint ventures and mergers & acquisitions are increasing, exemplified by Fidelity's RegTech spin-out creating SAIFR in 2021 and Wolters Kluwer's OneSumX platform expansion in 2024. Large institutions are creating dedicated innovation labs and venture arms to identify and partner with promising RegTech startups.

Regulatory sandbox adoption is facilitating partnerships, with FCA, MAS, and ESMA regulatory sandboxes accelerating fintech collaborations by providing safe testing environments for innovative compliance solutions. These sandboxes allow institutions to experiment with RegTech solutions without full regulatory compliance burden during pilot phases.

The acquisition strategy focuses on proven technologies with established customer bases rather than early-stage startups. Institutions prefer acquiring companies with regulatory approval track records, existing compliance frameworks, and demonstrated ROI in similar institutional environments.

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What major regulatory or legal shifts are accelerating the adoption of regtech tools in 2025?

The Digital Operational Resilience Act (DORA) implementation on January 17, 2025, represents the most significant regulatory driver, mandating comprehensive ICT risk management for over 22,000 EU financial entities.

DORA requirements span five critical pillars: ICT risk management frameworks, incident management and reporting systems, digital operational resilience testing programs, third-party risk management protocols, and information sharing arrangements. Financial institutions must demonstrate real-time testing capabilities, automated incident reporting, and comprehensive third-party oversight through RegTech solutions.

EU AI Act and U.S. SEC AI priorities are creating obligations for explainability and audit trails in AI-driven compliance systems. These regulations incentivize RegTech platforms that provide transparent, auditable AI decision-making processes with comprehensive documentation and bias detection capabilities.

MiCA (Markets in Crypto-Assets) and crypto-asset regulations are driving demand for blockchain-based RegTech solutions that provide on-chain analytics and transaction monitoring capabilities. Crypto compliance requirements are fueling adoption of specialized RegTech tools for digital asset monitoring and reporting.

Global harmonization efforts by FSB and IOSCO are pushing industry-wide data governance standards that require RegTech solutions for standardized reporting and cross-border compliance coordination. These initiatives are creating demand for RegTech platforms that can manage multi-jurisdictional compliance requirements through unified interfaces.

What trends are expected to dominate the regtech landscape in 2026, both in terms of product and policy?

Embedded compliance will dominate product development, with compliance functionality integrated directly into business workflows rather than separate compliance systems requiring manual intervention.

Cross-industry RegTech expansion will accelerate beyond financial services into healthcare, pharmaceuticals, energy, and digital identity sectors. RegTech solutions will adapt core compliance technologies for industry-specific regulatory requirements across multiple sectors.

Predictive compliance will emerge through AI models that forecast regulatory shifts and recommend proactive policy adjustments before regulations change. These systems will analyze regulatory trends, enforcement patterns, and policy signals to provide early warning systems for compliance teams.

Regulator-as-a-Service (RaaS) convergence will see RegTech solutions offered directly to supervisory bodies for real-time oversight capabilities. SupTech adoption will enable regulators to monitor financial institutions continuously rather than through periodic examinations and reports.

Agentic AI deployment will expand, with firms adopting AI agents incrementally rather than enterprise-wide implementations. This approach allows organizations to realize compliance value without massive system overhauls while building institutional AI capabilities gradually.

Policy trends will focus on AI governance frameworks, with regulators developing specific guidance for AI use in compliance applications. Cross-border data sharing protocols will enable collaborative compliance while maintaining privacy requirements through federated learning and privacy-preserving technologies.

What does the growth trajectory look like for regtech over the next five years in terms of market size, investment volume, and adoption rate?

The RegTech market will experience explosive growth with a projected compound annual growth rate of 22.8%, expanding from $19.60 billion in 2025 to $82.77 billion by 2032.

Market size expansion will be driven by increasing regulatory complexity, mandatory digital transformation, and AI adoption across financial services. North America will maintain its 52.7% market share leadership while Asia-Pacific markets, particularly India with 37.8% projected growth, will drive significant expansion.

Investment volume is expected to exceed $10 billion annually by 2027, with Series B/C rounds continuing to dominate as investors focus on proven solutions with established customer bases. The average funding round value of $35.5 million reflects increasing ticket sizes as RegTech solutions demonstrate clear ROI and scalability.

Adoption rates among Global 2000 financial institutions will surpass 80% for core AML/KYC and regulatory reporting solutions by 2030. The shift from experimental pilots to production deployments will accelerate as institutions recognize competitive advantages from automated compliance capabilities.

Geographic expansion will see RegTech adoption accelerating in emerging markets as regulatory frameworks mature and compliance requirements increase. The Indian RegTech market alone is projected to reach $354.72 million in 2025, demonstrating significant growth potential in developing financial markets.

Technology integration trends will see increasing convergence between RegTech, FinTech, and traditional banking systems, with APIs and cloud-native architectures enabling seamless compliance integration across entire financial services ecosystems.

Conclusion

Sources

1. Top 10 RegTech trends for 2025 | bobsguide
2. RegTech in 2025: what's next for financial services? - FStech
3. RegTech and Regulatory Change Report for 2024 | Grant Thornton
4. RegTech Market Size, Share, Growth | Industry Report, 2030
5. 2025 RegTech Trends: The Year AI Goes Mainstream - SymphonyAI
6. Regtech Market Size, Share, Trends & Growth Report [2032]
7. The Future of Compliance: Emerging RegTech Trends for 2025 - Proxymity
8. RegTech Industry Report 2025 | StartUs Insights
9. 19 US fintech startups have raised over $50M in 2025 so far | TechCrunch
10. Digital Operational Resilience Act (DORA) | Updates, Compliance, Training
11. What Is the Digital Operational Resilience Act (DORA)? | IBM
12. 7 AI-Powered RegTech Newcomers to Watch in 2025 - A-Team
13. Key Trends in RegTech for 2025: AI, Blockchain & Real-Time Reporting
14. The RegTech Revolution: Transforming Compliance Management
15. AI in RegTech: The Future of Compliance Automation - iComply