When the government decides to regulate a certain type of business, numerous changes usually take place. Most large firms hire compliance officers and establish entire departments that work to prevent violations. New staff members spend many hours studying complex rules.
Impact of Regulations
These laws can have both positive and negative effects on society. However, it’s crucial to realize that they always result in higher business expenses. This normally causes share prices to fall. In some situations, stock values drop long before new rules even take effect.
The costs of legal compliance are quite impressive. Every year, the world’s financial institutions spend more than $65 billion in an effort to avoid violating laws. This figure could soar to $118 billion by 2020. Each major European bank devotes more than $1.1 billion to this purpose.
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An Effective Solution
With the help of regulatory technology, businesses can prevent compliance costs from rising. “Regtech” uses sophisticated computer software to reduce these expenses. It benefits from blockchain and artificial intelligence systems. Investors should take a closer look at firms that offer these services.
The regtech sector consists of around 100 relatively small enterprises. They include little-known brands like ComplyAdvantage, Taxometry and OnRule. Many of these companies have yet to sell any shares to the public. Today, regtech providers primarily serve banks and insurers. All heavily regulated industries will probably use their services in the future.
A small number of regtech companies have held initial public offerings. Such firms could achieve substantial growth as more businesses recognize the benefits of signing contracts with these regulatory specialists. Their services save time and bring about significant cost reductions.
For instance, banks expect new account holders to confirm their identities. The associated laws prevent embezzlement, tax evasion and identity theft. Unfortunately, big financial institutions often find that related compliance efforts cost at least $11 million. Regtech firms can cut this expense to about $300,000, according to American Banker.
— Jeff Yastine (@Jeff_Y_Guru) December 8, 2017
Some government agencies recently started to learn about and communicate with regtech companies. They have considered integrating these specialists into the regulatory process. This development indicates that such firms could play a major role in the years to come.
American, British and Singaporean authorities have made specific proposals to begin cooperating with regulatory technology companies. Officials might assign them a role equivalent to that of bond ratings agencies. In 2016, the U.S. government’s currency regulation office suggested that it may permit these firms to register as banks.
Regulators may or may not adopt these proposals in the months to come. Nonetheless, the mere existence of these plans indicates that regtech specialists have achieved significant progress. Investors ought to consider buying shares in any business with the ability to help other companies save millions of dollars.
Jeff Yastine has worked as a writer, reporter and investor for over 20 years. He strives to provide exclusive information and advice that enables readers to maximize their investment returns. In 2015, Jeff Yastine became an editorial director at Banyan Hill Publishing. He currently serves as the editor of an investment newsletter known as Total Wealth Insider.