The multi-billion-dollar Market of tech-enabled Regulatory Compliance

In this article

• Market Size

• Main Market Drivers

• A Young Industry: Growth and Efficiency ahead

• Value Drivers

• European RegTech Investment Corner

• Geographic Targets

• Conclusion

Market Size

The global RegTech Market was valued at $12.6 billion in 2023, and it is expected to reach an estimated total market value of ~$104.17 billion by 2034, growing at a CAGR of ~21.3%.

Global RegTech Market growth is driven by the increasing adoption of these technologies and solutions, sin it is still a young space. Adoption is pushed by the complexity and the variation of the regulatory landscape, that changes constantly to face global problems, like financial stability, ESG and global goals of sustainability. The changing landscape creates incentives for companies to implement RegTech solutions to avoid non-compliances faults and allow the company’s efforts to focus on their value chain.

Main Market Drivers

The RegTech (Regulatory Technology) industry is growing rapidly as organizations seek solutions to address evolving regulatory requirements, improve compliance efficiency, and reduce risks. Key market drivers for the RegTech industry include:

• Increasing Regulatory Complexity

The volume and complexity of regulations globally, especially in financial services, are increasing. For example, GDPR in Europe, CCPA in California, and evolving anti-money laundering (AML) and know-your-customer (KYC) requirements create a challenging environment for compliance. Regulatory changes and frequent updates require firms to continuously adapt, making RegTech solutions for real-time regulatory tracking and compliance monitoring crucial.

• Rising Costs of Compliance

Compliance costs have been rising significantly, especially in highly regulated sectors like banking and insurance. By automating compliance processes, RegTech solutions help reduce operational costs while enhancing accuracy. Many RegTech solutions offer risk assessment, reporting, and monitoring tools that minimize the need for extensive manual checks, further lowering costs.

• Adoption of AI and Data Analytics

AI, machine learning, and data analytics are enhancing RegTech solutions, enabling advanced capabilities such as anomaly detection, predictive analytics, and automated reporting. These technologies improve the accuracy and efficiency of compliance processes, allowing organizations to identify risks faster and improve decision-making.

• Increased Focus on Cybersecurity and Data Protection

With the rise in cyber threats and data breaches, regulators are enforcing stricter cybersecurity and data privacy regulations, such as the Cybersecurity Maturity Model Certification (CMMC) and GDPR. RegTech solutions help firms manage data privacy and security requirements through real-time monitoring and automated reporting, ensuring they meet regulatory standards while minimizing cybersecurity risks.

• Digital Transformation and FinTech Growth

As financial institutions embrace digital transformation, RegTech is emerging as a way to keep pace with innovation while maintaining compliance. This is especially relevant for digital banks, crypto platforms, and other FinTech players under increasing regulatory scrutiny. RegTech facilitates rapid compliance adjustments, making it possible for digital-first companies to stay competitive while adhering to regulatory requirements.

• Globalization of Business Operations

As companies expand globally, they face multiple layers of regulatory requirements across jurisdictions. RegTech solutions help manage cross-border compliance more effectively by providing a centralized platform for regulatory data and reporting. Multinational corporations benefit from RegTech’s ability to streamline regulatory updates, monitor changes across different markets, and ensure uniform compliance practices.

• Demand for Real-Time Monitoring and Reporting

Traditional compliance solutions often lag, but RegTech offers real-time capabilities that improve responsiveness. This is critical in markets where even minor delays can result in fines or sanctions. Real-time monitoring helps organizations detect and respond to compliance breaches swiftly, reducing potential penalties and reinforcing their compliance posture.

• Pressure to Reduce Regulatory Fines and Penalties

Financial institutions are under pressure to avoid hefty regulatory fines. RegTech provides tools that proactively monitor compliance, which can reduce the frequency and severity of fines related to AML, fraud, and other compliance breaches. By helping firms identify potential issues before they escalate, RegTech solutions support a preventive approach to regulatory risk management.

• Investor and Consumer Demand for Transparency and Accountability

Investors and consumers increasingly expect companies to operate with transparency, particularly concerning data privacy, environmental standards, and social responsibility. RegTech solutions help companies meet these expectations by providing transparent reporting and better management of non-financial disclosures, including environmental, social, and governance (ESG) compliance.

• Increased Regulatory Expectations for Financial Crime Prevention

Regulatory authorities worldwide are tightening their expectations for financial crime prevention, including anti-money laundering (AML) and counter-terrorist financing (CTF). RegTech companies are innovating in fraud detection, AML, and KYC solutions to help organizations comply with financial crime prevention regulations more effectively.

A Young Industry: Growth and Efficiency ahead

RegTech Industry is still a new space in the world`s economy, since it is the result of the combination of globalization of digital businesses model with the interconnectivity of compliances regulations in a changing landscape.

Since the 90s and even more since the 2000s, new technologies has driven new global challenges, pushing the need for coordinated policies among countries, especially in very sensitive sectors for a highly connected world, like the financial system.

RegTech is an Industry that still has a long path of growth and scale, that will need growth capital to capture the increasing market value that the upcoming challenging years will generate.

Most of the RegTech players still correspond to SMBs and Startups companies due to the youth of the industry and the fragmentation it experiments with the new complex regulations that requires industry vertical expertise and focus instead of brad regulation management.

Efficiency is also scaling among RegTech solutions, as indicated by a steady decrease in Time to Value (TTV) from 2019 (13 months) to 2023 (8.1 months). This trend highlights that RegTech companies are not only enhancing their internal efficiencies but are also becoming increasingly focused and specialized in the industry verticals they serve. As these companies gain more experience and expertise within specific sectors—such as banking, insurance, and asset management—they’re able to deliver faster, more tailored solutions that align closely with the unique regulatory challenges and compliance needs of each industry.

This decrease in TTV is also a reflection of advancements in RegTech technologies, including the integration of AI and machine learning. These innovations allow for quicker deployment, smarter automation, and improved adaptability, enabling RegTech solutions to provide immediate value upon implementation. As a result, companies adopting these solutions experience faster returns on investment, making RegTech not only a strategic asset for compliance but also a financially sound investment with a high ROI.

Moreover, the trend of lower TTV underscores the RegTech industry's commitment to agile development practices and client-centric customization. By continuously refining their platforms, RegTech providers are improving ease of integration, reducing onboarding times, and enhancing user experience, which contribute to more immediate and impactful results. This evolution in efficiency ultimately empowers businesses to navigate complex regulatory landscapes with confidence, reduce operational risks, and keep pace with an ever-changing regulatory environment.

Value Drivers

According to Grant Thornton, the top 5 areas driving budgets for investments in RegTech solutions for the next year, among companies are:

1. Financial Crime

2. Governance risk and compliance

3. Environmental Social Governance (ESG)

4. Regulatory reporting

5. Artificial Intelligence

These areas are those that push most companies to adopt RegTech solutions. The following other important areas are Cyber Security, Regulatory data management and Horizon scanning.

Regarding the entire regulatory landscape, 36% of client-side state that the regulatory landscape is complex, which means that RegTech solutions have a huge opportunity in helping companies understand the regulatory framework they must comply with.

The complexity of regulations net, and the growth of this complexity pushes companies to implement RegTech solutions, since the potential penalties of non-compliant actions are severe and could cost millions of dollars, putting in danger the financial health of companies, among many sectors, but especially in financial institutions as is a strongly regulated vertical, and highly exposed to Money Laundering activities.

European RegTech Investment Corner

Europe is the place of birth of many regulations and policies at a local, national and European level, and consequently is also the place of birth of many RegTech solutions.

United Kingdom ranks as the top European country for RegTech investments in 2024, maintaining the dominance from 2023. In the first half of 2024 the United Kingdom RegTech space completed 20 transactions, representing the 23% of the total European RegTech dealmaking of the period (1H24).

Even the complexity of European regulations and the severe penalties for non-complying with them, the European RegTech dealmaking has shown a huge year-over-year downgrade of -54% (2024 vs 2023 levels).

Even these dealmaking downgrades, Europe continues to stand as a top geographic target for RegTech solutions, driven by the intensive digital infrastructure and the highly regulated European Union’s economy, where companies need to comply with 3 levels of authorities and policies (local, national and EU).

Geographic Targets

Most attractive countries for RegTech Adoption are those that combine a strong digital investment landscape and a complex regulatory framework that companies must comply with. A strong digital investment landscape is crucial for any digital business model, since it is needed to support the development of these businesses. Strong technology infrastructure is given by the Networked Readiness Index Score (NRI Sc) from the Portulans Institute that measures the ability of countries to leverage information and communication technologies (ICT) for economic growth and societal development. It assesses factors such as technology infrastructure, digital skills, and innovation capacity. While the growth factor is given by the proxy variable based on the Last 10 Years Average of Gross Capital Formation as % of GDP (L10Y GCF % of GDP), which captures investment countries rates. The resulting Index is called “Digital Investment Vitality” and measures the effectiveness and robustness of a country's digital investment landscape, evaluating its capacity to support the growth of digital businesses.

Digital Investment Vitality = (NRI Sc 0.5) + (L10Y GCF % of GDP 0.5)

After measuring the strength and growth of the Digital Infrastructure landscape, it is needed to cross it with the adoption driver of RegTech solutions: the regulatory landscape. A good proxy that considers most of the regulations that affect business across different countries is the “Ease of Doing Business Index”.

With an intersection analysis between the Digital Investment Vitality Index, we built and the last position of countries in the Ease of Doing Business Index Ranking we are able to recognize countries with quite strong digital infrastructure terrains and complex business regulations, identifying key targets to penetrate with RegTech solutions.

The resulting scatter shows a logical negative correlation between Digital Strength and Ease of Doing Business, since the development of digital infrastructure is logically easier in countries where doing business is easier. However, the key insight of this analysis is that it highlights countries where RegTech has good technological facilities where to be developed and complicated regulatory and policy environments driving RegTech solutions demand.

Conclusion

The RegTech industry presents an exceptional opportunity for Private Equity investment due to its rapid growth potential and young, evolving landscape. With the global market projected to increase substantially, reaching over $100 billion by 2034, RegTech stands as a promising frontier where innovation meets regulatory demand. The industry’s youth and fragmentation mean that there is an ample room of opportunities for consolidation and strategic investments to build industry leaders in key niches.

Geographically, markets with complex regulatory environments and robust digital infrastructure emerge as strategic targets for RegTech adoption. These regions, while challenging due to stringent and layered regulations, provide fertile ground for RegTech solutions due to high compliance needs and established digital networks. The intersection of strong digital capabilities and rigorous regulatory frameworks positions these areas for accelerated adoption, offering PE firms a chance to capitalize on early-stage growth in a sector poised to scale significantly. As RegTech continues to mature and respond to emerging regulatory challenges, it is set to become a valuable addition to a diversified investment portfolio, providing substantial long-term value.