On the 20th of each month, businesses in India complete their GST returns for the period, believing their compliance work for the month is done. However, shortly after, they receive automated notices pointing out discrepancies in their reporting. This process illustrates how technology is now employed to monitor real-time regulatory compliance data in India.
In another scenario, a borrower defaults on a loan payment, and the bank promptly reports this to the Reserve Bank of India (RBI) through the CRILC platform. This information is then shared with other banks dealing with the same borrower. This showcases how regulatory reporting contributes to spreading awareness and controlling non-performing assets (NPAs) in India.
Furthermore, when a seller generates an e-invoice and e-way bill, the recipient receives relevant notifications. This triggers reconciliation with purchase orders (PO) and goods received notes (GRN), ultimately resulting in a journal entry in the enterprise resource planning (ERP) system. This end-to-end automated workflow is a prime example of how regulations and technology are fostering business efficiency.
These instances underscore the widespread impact of regulatory technology, commonly referred to as RegTech. In the realm of managing the intricate and ever-evolving regulatory landscape, the use of technology is becoming indispensable. RegTech is instrumental in helping organisations adopt compliance procedures efficiently, while also enabling regulators to monitor effectively.
Globally, the RegTech market is on the rise. According to Allied Market Research, it is projected to achieve a compound annual growth rate (CAGR) of 23.5 per cent between 2018 and 2025, ultimately reaching a market value of $55.28 billion by 2025.
India is renowned for its diverse and intricate regulatory framework. From financial services and healthcare to energy and manufacturing, almost every sector has to adhere to a plethora of regulations. The compliance requirements can range from financial reporting, taxation, and data security to environmental standards and consumer protection. Navigating this regulatory maze has historically been time-consuming, costly, and fraught with the risk of non-compliance penalties.
The Rise of RegTech
RegTech, a subsector of FinTech, is the answer to these challenges. It refers to the use of technology to help companies comply with regulations efficiently and at a lower cost. By automating compliance processes and leveraging data analytics, RegTech solutions offer businesses the ability to streamline their operations and make informed decisions while remaining compliant with the law.
Streamlining Compliance Processes
One of the primary ways RegTech is transforming India’s regulatory landscape is by simplifying compliance processes. Traditionally, organizations had to dedicate significant resources, both human and financial, to manually collect, analyze, and report data to meet regulatory requirements. This often involved sifting through mountains of paperwork and dealing with complex spreadsheets.
RegTech solutions, on the other hand, use automation and machine learning algorithms to process vast amounts of data quickly and accurately. For example, in the financial sector, RegTech tools can help banks and financial institutions automatically monitor transactions for suspicious activities, reducing the risk of money laundering and fraud. In the healthcare industry, RegTech can assist in maintaining compliance with patient data protection laws, ensuring that sensitive information is handled securely.
Reducing Regulatory Burden
Perhaps one of the most significant advantages of RegTech is its potential to reduce the regulatory burden on businesses. As the regulatory landscape continues to evolve, compliance requirements become increasingly complex. This can be particularly challenging for small and medium-sized enterprises (SMEs) with limited resources.
RegTech levels the playing field by providing SMEs with affordable and scalable solutions. Cloud-based RegTech platforms, for instance, allow businesses to access compliance tools on a subscription basis, eliminating the need for substantial upfront investments in software and infrastructure. This democratization of compliance technology empowers smaller enterprises to remain compliant without breaking the bank.
The Future of RegTech in India
The future of RegTech in India holds great promise. As regulatory requirements become more stringent and data privacy concerns grow, the demand for RegTech solutions will only increase. India’s regulators, such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), are also recognizing the potential of RegTech to enhance regulatory oversight.
In the coming years, we can expect to see even more innovative RegTech solutions tailored to India’s unique regulatory landscape. These solutions will not only automate compliance but also provide valuable insights into regulatory changes, helping businesses stay ahead of the curve.
Challenges and Considerations
While RegTech offers numerous benefits, there are challenges to consider. Data security and privacy are paramount concerns. Rise in frauds such as GST registrations with stolen identities are deeper problems to address. RegTech providers must prioritize robust cybersecurity measures to protect sensitive information.
Additionally, there is a need for regulatory clarity and collaboration between regulators and the RegTech industry. Clear guidelines and standards will ensure that RegTech solutions meet regulatory requirements effectively.
In Conclusion
As India continues to evolve its regulatory landscape, the adoption of RegTech solutions is not just a choice but a necessity for businesses seeking to thrive in the country’s vibrant economy. RegTech is not only reshaping compliance but also empowering businesses to focus on innovation and growth, which is vital for India’s economic progress in the 21st century.
(The author is head of product & strategy IRISGST, at IRIS, a stock exchange listed RegTech company)
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