According to a report by Fintech Global, 2016 saw the RegTech sector become a prominent sector for innovators, investors and regulatory bodies worldwide and is set attract even more interest in 2017. The report shows that investments have increased by 3.5 times in the last 5 years and that London tops the charts for the number of deals.
As reported by the Fintech Times, 2016 was a record breaking year for RegTech with $678m was invested in 70 companies, compared to $185m in 32 companies in 2012. Q1 was a record quarter in terms of deals completed (21) whilst Q3 was a record in terms of volume ($305m). Most of these investments went towards the sub-sector of anti-fraud, which has increased from 14.1% of all investments to 49.4% in 2016.. Moreover, investments in anti-fraud firms have jumped from $82.2m in 2014 to $334.8m in 2016.
Increasing regulations are likely to lead banks and traditional financial firms to seek for more innovative and tech-led initiatives. Regarding this trend Radboud Vlaar, partner at venture firm Orange Growth Capital, said: “It is an area that is fragmented, requires a lot of cost for banks and puts pressure on the customer experience. It is a great place to attack with tech: there’s a big pool full of inefficiencies, it’s a big headache for clients and as such big gains can be made.”
London has taken the lead in this sector with 39 deals between 2012 and 2016. Some of the most remarkable funding rounds included Onfido‘s which raised a $25m round led by Idinvest Partners, the largest deal in the sector in London last year, followed by Featurespace ($9m from TTV Capital) and ComplyAdvantage ($8.2m from Balderton Capital) . Elliptic has had a successful Series B round raising $5m from Paladin Capital Group, Octopus Ventures, Santander InnoVentures, KRW Schindler and Digital Currency Group. 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 $70k per investment.
According to many investors, London is set to keep the lead in this sector as it has a great availability of talent and capital, and it benefits from the supportive stance of the FCA. Damian Kimmelman, chief executive at Duedil, commented on this matter: “Traditionally the UK has been the heart and soul of opportunities for regulated disruptors. The regulators have been extremely thoughtful, values-based and not especially litigious. That creates a really friendly environment.”