London is set to lead dramatic growth in the regulatory technology (regtech), according to new research from data firm, Fintech Global.
Regulation is one of a list of services to have the suffix ‘tech’ bolted on over the past decade. While the name is new, the combination of agile technology and its application to regulatory challenges isn’t. But with increasing levels of regulation and a greater focus on data and reporting has thrust this sector into the forefront.
Research from Fintech Global today reveals that the sector is on a growth trajectory; regtech investments have more than tripled (38.5 per cent CAGR) over the last five years. Last year, a record $678 million was invested in 70 companies, compared to $185 million in 32 companies in 2012. Q1 was a record quarter in terms of deals completed (21), while Q3 was a record in terms of volume ($305 million).
Of all the cities in the world that have developed the sector, London has established itself as the global leader in regtech deals, with 39 investments between 2012 and 2016.
The largest six regtech deals in London last year raised over $65 million from some of Europe’s leading venture capital firms. For example, global identity verification tool Onfido raised a $25 million round led by Idinvest Partners, which was the largest deal in the sector in London last year, followed by Featurespace, which raised $9 million from TTV Capital, and ComplyAdvantage, which was backed by Balderton Capital with $8.2 million.
The next six locations in the city rankings are based in North America. Dublin and Paris are the only other European cities to appear in the top ten.
Although the industry is seeing an increase in larger investments, the majority of regtech deals financed in London are early stage. Accelerators have had a key role to play in the development of the sector. In fact, three of the top ten most active regtech investors worldwide (in terms of numbers of deals) are based in London. Techstars, Wayra and StartupBootcamp have made 21 London-based RegTech investments between them, averaging $70,000 per investment.
Backing for anti-fraud companies has overtaken compliance-focused companies over the last year. Investments in companies in the anti-fraud sector have jumped from $82.2 million in 2014 to $334.8 million in 2016. As a sub-sector of regtech, it has increased from 14.1 per cent of all investments to 49.4 per cent in 2016.
Regtech includes tools for legislation and regulation gap analysis, compliance universe, health check, management information, transaction reporting, regulatory reporting, activity monitoring, training, risk data warehouses, and case management.