Capital ‘starvation’ hindering regtech adoption

The RegTech Association has published research revealing that despite growing demand for regulatory technology, an “equity gap” is hindering mainstream adoption.

The research, which involved a survey of RegTech Australia’s members, found that:

• only 15 per cent of firms have received investment from venture capital and only 12 per cent have received corporate VC investment;
• only 9 per cent of firms have received private equity investment; and
• only 9 per cent of firms have received grant funding.

Reflecting on the research, Deborah Young, CEO of the RegTech Association, commented: “The member study shows an ecosystem of bootstrapped, mostly very senior innovators, that have designed and fine-tuned technologies to meet the exponential global demand for regtech.

“Despite clear signs of adoption from corporate and government as customers of RegTech, investors have been slow to realise the promise of this space for achieving returns.”

Ms Young also noted that the lack of funding available to regtech firms has inhibited potential adopters from reaping the benefits of improvements in compliance practices.

“Early adopters in banks and regulators have strengthened their ability to comply and enforce regulation, whilst boosting human productivity, by installing RegTech,” she said.

“But, ironically, regtech is being starved of capital by the sectors that need it most, including superannuation and corporate venture funds.

“We must institute the mechanisms for our economy to become ‘regtech-ready’; to meet our needs at home, which in turn, will foster international export of solutions abroad.”

Barbara Sharp, CEO of Pax Republic (a member of the RegTech Association), added: “Australia punches above its weight in regtech, but the impact of underinvestment of funding will be a classic ‘brain drain’ to overseas markets.

“Regtechs must meet stringent risk standards as they are solving huge problems for conservative, risk-averse companies. So, it takes much longer to validate what is most often a very big market.”

Ms Sharp concluded: “Any and all initiatives that reduce the time to value over the next 12 months will be key to ensuring that by 2022, Australian regtech companies continue to lead and that growth happens in Australia, not overseas.”

[Related: ASIC encourages financial firms to adopt regtech]