Regulatory Technology (Reg Tech) as an enhancement of compliance processes in financial institutions

Abstract

This paper explores the evolving role of Regulatory Technology (Reg Tech) as a transformative catalyst in financial compliance. Emerging after intensified regulatory requirements post-2007–09 subprime financial crisis, Reg Tech leverages technologies such as Artificial Intelligence (AI), Machine Learning (ML), blockchain or cloud computing to enhance both efficiency and effectiveness of compliance processes in financial institutions. Based on academic literature, industry reports, and real-world case studies, the paper examines key advantages of Reg Tech adoption, including reduced compliance costs, improved risk detection, and enhanced reporting accuracy. It also highlights main barriers such as legacy IT systems, data privacy concerns, and skills gaps within compliance teams. From a policy perspective, the paper analyzes how regulatory authorities are embracing Supervisory Technology (Sup Tech) to modernize oversight functions, improve data collection, and strengthen market surveillance. The dual perspective — Reg Tech for institutions and Sup Tech for regulators—underscores the broader digital transformation of financial regulation. The paper concludes with policy recommendations aimed at fostering Reg Tech adoption through regulatory clarity, innovation facilitators, skills development, and stakeholder collaboration. Overall, the study provides a holistic assessment of how technology is reshaping compliance in the financial sector and identifies critical enablers for its responsible and scalable deployment. Among research questions are: What are the current advantages and risks of adopting Reg Tech solutions in financial institutions? What technological, organizational, and regulatory barriers hinder broader adoption? The hypothesis to be tested is as follows: Reg Tech adoption enhances regulatory compliance processes in financial institutions. In research paper, the following methods are leveraged: qualitative methodological approach focusing primarily on: systematic review of academic literature and industry reports on the issue in question, comparative case study analysis of Reg Tech deployment within highlighted financial institutions as well as Sup Tech deployments within selected regulatory institutions, secondary expert insights gathered from white papers and publicly available data. Based on the above-mentioned methodological approach, the hypothesis was tested positively.