What law firms need to know about RegTech
RegTech, short for Regulatory Technology, refers to technology that solves the regulatory and compliance challenges faced by organisations. But what does it mean for law firms?
In the words of the UK Financial Conduct Authority:
RegTech is a subset of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities.
While RegTech is commonly associated with the financial sector, it’s also utilised by other industries that function within regulatory frameworks.
Given the legal sector’s operation within strict regulatory boundaries, handling substantial volumes of data, and the need to perform numerous repetitive tasks, it stands to benefit greatly from the implementation of RegTech. But first, let’s unpack what it does.
RegTech, LawTech: What’s the difference?
RegTech and LawTech may seem similar at first glance, but they actually address different yet interconnected challenges in the legal industry.
LawTech is all about improving legal processes and service delivery. It encompasses technologies like legal research platforms, contract management systems, and virtual law assistants, designed to streamline legal operations.
On the other hand, RegTech has a specific focus on ensuring compliance with the constantly changing regulatory landscape. Its purpose is to help law firms navigate complex regulations, simplify compliance tasks, and ensure adherence to regulatory requirements.
What the RegTech market looks like
Client and regulatory demand for tech-enabled law firms hit a record high last year… and it’s only getting started. The market is expected to reach £22.2 billion by 2027, a substantial increase from its current valuation of £7.2 billion.
Recognising the importance of digital transformation in the legal industry, the UK government took action last year by investing £4 million into its LawTechUK program. This strategic initiative aims to expedite the adoption of digital solutions across the legal sector.
According to Wolters Kluwer’s research, only 41% of legal departments asked potential law firms about the technology they use for efficiency. But in 2022, that number climbed to 70%. And by 2025, a staggering 97% of legal departments are projected to prioritise understanding and integrating tech solutions into their daily operations.
How law firms can use Regtech
For anyone in the legal industry, staying on top of compliance is like trying to hit a moving target. Regulations are constantly evolving, triggered by events like the 2008 financial crash, the rise of Bitcoin, or even geopolitical events like Russia’s invasion of Ukraine.
That’s where RegTech comes in, streamlining crucial aspects, such as…
Know Your Customer (KYC) and Anti-Money Laundering (AML) screening
RegTech can revolutionise the KYC and AML screening process by instantly cross-checking clients against real-time politically exposed persons (PEP) and sanction lists. This enables quick identification of any concerning clients or potential clients, eliminating the risks and time-consuming nature of manual research and monitoring.
Reporting and audit trails
RegTech empowers law firms to maintain comprehensive audit trails and generate detailed reports for regulatory authorities. This enhances transparency and accountability, ensuring that law firms can demonstrate compliance during regulatory audits or investigations.
RegTech tackles the challenge of inconsistent and inaccurate reporting. Regulatory bodies, including the Financial Conduct Authority (FCA) in the UK, advocate the use of RegTech to produce smarter and more standardised regulatory reports. Additionally, RegTech plays a vital role in promoting transparency and consistency in reporting Environmental, Social, and Governance (ESG) standards.
How law firms can use Regtech
In today’s fiercely competitive legal market, where profit margins are tight, RegTech offers law firms valuable leverage. But with a multitude of tools and platforms available, selecting the right option can be challenging.
The best choices provide law firms with…
Automates client onboarding tasks like research, verification, and due diligence. This reduces manual effort, minimises back-and-forth emails, and accelerates the onboarding process, enabling law firms to serve clients more efficiently.
Adapts to evolving regulatory requirements, ensuring ongoing compliance in a fast-paced regulatory landscape. It aggregates information from various sources, such as sanctions lists and adverse media, to establish connections and uncover insights.
Equal opportunities for smaller firms
Levels the playing field for smaller law firms to access advanced compliance tools and technologies. This empowers smaller firms to meet regulatory requirements, provide high-quality services, and avoid overlooking critical client or case information.
Reduction in un-billable hours
Automates compliance-related tasks, reducing the time spent on manual processes. By streamlining research and due diligence, law firms can focus more on client work, maximising billable hours.
On-demand, transparent records
Helps law firms to demonstrate adherence to regulatory requirements during audits or regulatory scrutiny. By avoiding last-minute searches for compliance records, law firms can efficiently communicate their procedures to regulators. It’s important to choose RegTech vendors that offer clear explanations of their underlying processes.
Enables law firms to proactively identify and address compliance gaps, minimising the risk of non-compliance and associated penalties or fines. Ongoing monitoring and alerts help firms respond quickly and avoid regulatory consequences.
Reduced false positives
Some RegTech tools tackle the challenge of false positives. Advanced platforms, like Xapien, utilise AI algorithms and contextual information to generate targeted reports specific to individuals, resulting in more accurate and faster compliance processes.
Discover the power of Xapien
Xapien’s advanced AI technology delivers rapid and systematic due diligence reports within minutes. By searching the entire indexed internet, Xapien compiles all the essential information about a subject, providing law firm’s with a comprehensive overview.
Xapien reports are fully comprehensible and auditable, featuring timestamps that demonstrate the thoroughness of their research. With Xapien, law firms can confidently showcase to regulators that their decisions are backed by a thorough analysis of all available information at the time.
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