RegTech broadly to include any technology and/or software created to address regulatory challenges and help companies understand regulatory requirements and stay compliant.

1. THE STATE OF REGTECH
September 20, 2017

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5. 5
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10. Lindsay Davis
@lcdavis1225
ldavis@cbinsights.com
10
About the presenter
Research Analyst, CB Insights
Focuses on fintech, regtech, and HR tech
Previously worked at the Depository Trust and Clearing Corporation
as an internal auditor
Graduate of the University of Florida with a Bachelor's in Economics
and Master’s in International Business from the Warrington School
of Business

11. VISIT
www.americanbanker.com/conference/regtech
TAKE $200 OFF REGISTRATION
Promo Code: CBINSIGHTS
Join Lindsay and 25+ other
speakers at RegTech 2017.
RegTech 2017 will bring together
the entire ecosystem involved in
regulations, compliance, and the
technology that help banks master
them.

12. 12
13
30
38
66
Refresher: What is Regtech?
Macro Drivers Enabling The Rise Of Regtech
Regtech Financing Trends
Looking Ahead: Regtech Trends We Are Watching
• Regtech Trend #1: Investors Are Betting On Further Automation
• Regtech Trend #2: AI Eats The Compliance Office
• Regtech Trend #3: Tech Specific To Regulation
• Regtech Trend #4: Robo-Regulators
Key Takeaways
11
Table of Contents

13. 12
Regulatory bodies covered are industry specific and can include
governments, councils, or agencies.
Compliance requirements include both new and existing rules,
regulations, sanctions, and industry-specific guidance as prescribed by
the respective regulatory body.
The technology was created to address challenges ranging from
traditional compliance and risk management to data reporting and
transmission, and much more.
DEFINITION OF REGTECH
Regtech | noun | /reg-tekˈ
Technology that addresses regulatory challenges and facilitates the delivery of compliance requirements

14. Since the 2008 financial crisis, banks have paid
$321 BILLION
in fines
13
Source: Bloomberg

15. And in 2016, the SEC alone issued
868 ENFORCEMENTS
(amounting to $4B in penalties ordered)
14
Source: SEC

16. THE SEC IS BEEFING UP ITS’ HEADCOUNT
15
The SEC’s proposed 2017
budget is
$1.78 BILLION
employing 4,870 full time
employees

17. INCREASING REGULATORY DEMANDS
16

18. KEY FINANCE REGULATORY AGENCIES
17

19. 18
MORE SURFACE AREA FOR GAPS

20. 19
Average Daily
Regulatory Alerts
201
2016 Total
Regulatory Alerts
52,506
Global Regulatory
Bodies
750+
Compliance Rule
Books
2,500
Firms Have Implemented A Regtech Solution
~17%
TOP COMPLIANCE CONCERNS
$100B
Financial Services
Projected Regulatory
Compliance Spend in
2017
Source: Thomson Reuters

21. Wells Fargo, Awash in Scandal, Faces new
Violations Over Car Insurance Refunds
August 7, 2017
Compliance Gaps are still Rampant
20

22. State Street settlements
since 2016 are ~$450M
In addition to keeping up
with the increased pace,
some firms are still
cleaning up after bad
actors.
Fraud is still an issue
among many firms.
Incidents are not only
costly but also damage
the firm’s culture and its
customer’s trust.
21
$167.4 Million
+ $35 Million
----------------------------
$202.4 Million
$155 Million
+ $32.3 Million
---------------------------
$187.3 Million
+ $60 Million
---------------------------
+ ~$38 Million
---------------------------

23. TRADERS HID SECRET MARKUPS WORTH $2.7M
Source: Financial Times & SEC Press Release
22
“No one is going to [expletive]
notice that . . .
It’s a rounding error.”
State Street trader
While on a recorded line, according to the SEC

24. 23
BANKS’ RESOURCES ARE TIGHT

25. Firms still fell
unprepared to meet
regulatory requirements
Proactively managing
risks and regulation is a
top investment priority
for firms globally.
However, PwC’s latest
survey reveals few are
very prepared to
implement a strategy,
despite its importance.
24
PWC BANKING 20/20 SURVEY
Survey of Global Banking Executives
Six Priorities: Significant gap between preparedness and importance
Source: PwC
Customer-Centric Business Model
Optimized Distribution
Simplification
Information Advantage
Enabling Innovation
Proactively Managing Risks and Regulations
Very prepared Significant Investment Very Important

26. 25
THE REGULATORY IMPLIMINATATION CALENDAR
FORSHADOWS WHAT BANKS NEED TO PRIORITIZE
Source: Moody’s Analytics
GLOBAL REGULATORY INITIATIVES
2015 – 2019
2016 REGULATORY HIGHLIGHTS
• Fiduciary Rule United States
• Dodd-Frank Act
• Consolidated Audit Trail (CAT)
• Markets in Financial Instruments
Directive II (MiFID II)
• The Markets in Financial
Instruments Regulation (MIFIR)
• Revised Payment Services
Directive (PSD2)
• General Data Protection
Regulation (GDPR)
2017 REGULATORY HIGHLIGHTS

27. IT’S ONLY THE BEGINNING
26

28. ATTENTION ON REGTECH SEES RAPID GROWTH IN 2017
27
CB Insights Trends mines
a massive corpus of
media articles to enable a
data-driven, real-time
method to discover,
predict, and plot the arc
of rising expectations
and excitement.
CB Insights 1st Briefing

29. ATTENTION ON REGTECH SEES RAPID GROWTH IN 2017
28
CB Insights Trends mines
a massive corpus of
media articles to enable a
data-driven, real-time
method to discover,
predict, and plot the arc
of rising expectations
and excitement.
CB Insights 2nd Briefing

30. TECH IN COMPLIANCE AND REGULATION ON THE RISE
29
Everyone Else
CB Insights Trends mines
a massive corpus of
media articles to enable a
data-driven, real-time
method to discover,
predict, and plot the arc
of rising expectations
and excitement.

31. Global corporate venture capital:
REGTECH FINANCING TRENDS
30

32. Global regtech equity funding since 2013:
$4.96 BILLION
across
585 DEALS
31

33. $558 $1,088 $1,294 $1,128 $894
83
126 126
147
103
2013 2014 2015 2016 2017 YTD
Disclosed Funding ($M) Deals
$1290
(Full-year projection)
148
(Full-year run rate)
2017 on pace to set
record of 148 deals
worth nearly $1.29B
Year to date, regtech
startups seen 103 deals
worth $894M in funding.
At the current run rate,
deals and dollars in 2017
will reach a deal high of
148 deals worth $1.3B,
bringing investment over
the last 5 years to more
than $5B.
32
Regtech annual global financing history ($M)
2013 – 2017 YTD (9/10/17)

34. $102
$161
$152
$143
$173
$263
$302
$351
$410
$250
$455
$180
$198
$199
$415
$315
$285
$326
21
22
26
14
27 27
36 36
32
28
38
28
35 35
41
36
39
34
2013 2014 2015 2016 2017
Disclosed Funding ($M) Deals
Q2’17 surpassed Q1’17
despite slight dip in
deals
H1’17 has seen 73
investments, up 3 deals
from H1’16, while
funding is up
approximately 54%.
Compared to the same
quarter a year prior,
Q2’17 funding was up
64% and short 1 deal.
2017 remains on pace to
top 2016’s deal total,
despite a slow Q2.
33
Regtech quarterly global financing history ($M)
Q1’13 – Q3’17 YTD (9/10/17)

35. Investors continue to
find early-stage
opportunities in regtech
Early-stage (seed / angel
and Series A) deals
accounted for
approximately 48% of
deal share in 2016 and
50% in 2017 YTD.
Investments to legacy
software providers has
contributed to a spike in
late-stage (Series D and
later) investments, which
stand at 15% in 2017
YTD.
34
Regtech global deal share by stage
2013 – 2017 YTD (9/10/17)
34% 22% 30% 30% 28%
18%
19%
13% 18% 22%
14%
10% 16%
9%
10%
10%
10%
6% 6% 4%
1%
3%
3% 3% 4%
11%
11%
11% 13% 11%
12%
25%
21% 20% 21%
2013 2014 2015 2016 2017 (YTD)
Seed / Angel Series A Series B Series C Series D Series E+ Other

36. 37%
10%
9%
6%
6%
6%
4%
4%
19%
United Kingdom
India
Canada
Israel
Ireland
Germany
Switzerland
Singapore
Other
Outside the US, the UK
leads with 37% of deal
share
Europe has been a
hotbed for early-stage
regtech startups, with a
focus on solutions for
the financial services
industry.
India came in second
with 10% of deals,
followed by Canada with
9%.
35
Regtech global deal share outside the US
2013 - 2017 YTD (9/10/17)

37. 36
60+ European regtech startups focused on financial services
2013 - 2017 YTD (9/10/17)

38. Banks are actively
making investments in
regtech
Banks such as
Santander, Barclays, and
Goldman Sachs are also
investing in regtech.
They have made
investments to
identification and
background checking
software, blockchain, and
trade monitoring.
37
Regtech bank investor trends
2012 – 2017 YTD (8/10/17)

39. 38
Looking Ahead:
REGTECH TRENDS WE’RE WATCHING

40. 39
Regtech trend #1:
Investors are betting on further automation

41. THE PHASES OF REGTECH
40
PHASE 1
MANUAL
• Manual data capture based on cyclical timelines

42. THE PHASES OF REGTECH
41
PHASE 1
MANUAL

43. THE PHASES OF REGTECH
42
PHASE 1
MANUAL
PHASE 2
WORKFLOW
AUTOMATION
• Manual data capture based on cyclical timelines
• Compliance software establishes consistent workflow

44. THE PHASES OF REGTECH
43
PHASE 1
MANUAL
PHASE 2
WORKFLOW
AUTOMATION

45. THE PHASES OF REGTECH
44
PHASE 1
MANUAL
PHASE 2
WORKFLOW
AUTOMATION
PHASE 3
CONTINUOUS-
MONITORING
• Manual data capture based on cyclical timelines
• Compliance software establishes consistent workflow
• Applying data science to automate the back office

46. THE PHASES OF REGTECH
45
PHASE 1
MANUAL
PHASE 2
WORKFLOW
AUTOMATION
PHASE 3
CONTINUOUS-
MONITORING

47. THE PHASES OF REGTECH
46
PHASE 1
MANUAL
PHASE 2
WORKFLOW
AUTOMATION
PHASE 3
CONTINUOUS-
MONITORING
PHASE 4
?
• Manual data capture based on cyclical timelines
• Compliance software establishes consistent workflow
• Applying data science to automate the back office

48. THE PHASES OF REGTECH
47
PHASE 1
MANUAL
PHASE 2
WORKFLOW
AUTOMATION
PHASE 3
CONTINUOUS-
MONITORING
PHASE 4
PREDICTIVE
ANALYTICS
• Manual data capture based on cycle times
• Compliance software establishes consistent workflow
• Applying data science to automate the back office
• AI and machine learning are proactively identifying and
predicting risk

49. THE PHASES OF REGTECH
48
PHASE 1
MANUAL
PHASE 2
WORKFLOW
AUTOMATION
PHASE 3
CONTINUOUS-
MONITORING
PHASE 4
PREDICTIVE
ANALYTICS

50. 49
Regtech trend #2:
AI eats the compliance office

51. HOW STARTUPS ARE LEVERAGING AI IN
PREDICTIVE ANALYTICS
RISK IDENTIFICATION
COMPLIANCE
INTELLIGENCE
IDENTITY
MANAGEMENT
BACKGROUND
SCREENING

52. Equifax Hacked: 143M American’s identities are at risk for financial fraud
WHERE DID EQUIFAX LOSE CONTROL?
51
BACKGROUND
SCREENING
IDENTITY
MANAGEMENT
RISK
IDENTIFICATION

53. 52
Regtech trend #3:
Tech specific to regulation

54. REVISED PAYMENT SERVICES DIRECTIVE (PSD2)
OPEN-ACESS & AN OPEN DOOR FOR FINTECHS
53
AFTER
BEFORE

55. AND BREAKING THE BANKS’ MONOPOLY
54
Focus: Railsbank is an open banking
and compliance platform targeting
both developers and banks
Disclosed Funding: $1.22M (Seed)
Select Investors: Firestartr
Focus: Open banking platform on the
blockchain leveraging smart contracts to
monetize access for banks from TPPs
Disclosed Funding: $18.5M (Series A)
Select Investors: EQT Ventures, Octopus
Ventures, OP Financial Group, and Plug
and Play Ventures
Focus: TrueLayer is an API platform for
developers to access bank data they
need to build new apps & services
Disclosed Funding: $4.3M (Series A)
Select Investors: Anthemis Group and
Connect Ventures
Upcoming Deadline: January 2018 European Union member states transpose PSD2 as law

56. Banks co-invested to meet
research unbundling
requirements of MiFID II &
MIFIR
Visible Alpha acquired
regtech reporting
software company One
Access to launch a
compliance platform to
track and value research
products and services.
They have raised $30M
in disclosed funding from
investors Bank of
America Merrill Lynch,
Citigroup, Jefferies &
Company, Morgan
Stanley, and UBS.
55
INVESTORS
ACQUIRED
EU’S MiFID II & MIFIR: Reporting overhaul
Upcoming Deadline: January 2018 MiFID II and MiFIR apply within Member States

57. Droit helps bank meet
trading overhaul
requirements of MiFID II
Droit’s Adept provides
pre-trade decision-
making and post-trade
reporting for OTC
Derivatives.
They have raised $16M
in disclosed funding from
investors Goldman
Sachs, Pivot Investment
Partners, Wells Fargo &
Company, and DRW
Trading Group.
56
USERS
INVESTORS
Disclosed Funding:
$16M Series A
EU’S MiFID II & MIFIR: Reporting overhaul

58. Banks & financial
utilities co-invest in
regtech software
Acadiasoft was founded
by the collaboration of
these financial
institutions to create
solutions that support
full implementation of
International Swaps and
Derivatives Association
(ISDA) Collateral
Requirements.
The company’s last
funding round was a
$30M investment Q3’15.
57
ACADIASOFT’S INDUSTRY INVESTORS
MARKET
UTILITIES
BANKS

59. REGTECH IS THE NEW OPPORTUNITY
Rebecca Lynn, co-founder and general partner at
Canvas Ventures
CB Insights Future of Fintech 2017
58
“Larger institutions are spending millions
on body shops [in order to deal with fraud
and compliance issues]. As fraud in
particular becomes more intense, these
institutions will need to implement
systems in order to help reduce risk.”

60. Regtech trend #4:
Robo-regulators

61. The SEC’s proposed 2017 budget is
$1.78 BILLION
50 years from now...
4,870
Employees in 2017
1
Robo-regulator in 2067?
versus
Source: SEC

62. 61
HOW TO AUTOMATE YOUR REGULATOR
DATA LIBRARY
INNOVATION LABS
APPLYING AI
The government collects & stores
massive amounts of data
The SEC, CFTC, & CIA are all
investing in data, analytics, & tech
To conduct pattern recognition,
apply predictive analytics, &
natural language processing

63. 62
Put simply...We need more data

64. Regulators warming up to tech to innovate
63
THE CEP RECOMMENDS A FULL-TIME
NATIONAL SECURE DATA SERVICE

65. CONSOLIDATED AUDIT TRAIL
64
EXCHANGES
DARK POOLS
BROKER DEALERS
REGULATORS
DISPARATE TRADE DATA

66. SEC’S CAT WILL COLLECT THE DATA NEEDED
FOR A ROBO-REGLATOR
65
CAT Processor
Selected by
NMS Plan
Participants
Business Clock
Synchronization
for SROs &
Broker-dealers
SROs begin
submitting data
to the central
repository
SROs must
implement
enhanced
surveillance
using CAT data
Large SRO
members must
begin
submitting data
to central
repository
Small SRO
members must
begin
submitting data
to the central
repository
03/2017
01/2017 11/2017 01/2018 11/2018 11/2019
The SEC’s Rule 613 was enacted after the flash crashes in
the early 2000s.
Rule 613 requires Self-Regulatory Organizations (SROs) to
create and maintain a comprehensive consolidated audit
trail (CAT).
The CAT enhances the ability of the SEC and the SROs to
track all activity throughout the U.S. markets in National
Market System (NMS) securities.
Collaboration between the regulators, Financial Industry
Regulatory Authority (FINRA), and the securities exchanges
is critical for the CAT’s success

67. KEY TAKEAWAYS FOR INCUMBENTS
66
Hustle smarter not harder
The industry continues to get hammered with fines and turning tricks won’t pay the compliance bills.
Firms are struggling to keep up with tightening regulation. Can your technology survive an
audit chokehold?
Regulation takes years to implement and even longer to deregulate. How will you utilize the right
technology to filter out the noise?
Divided we wall
Innovation in regulatory technology has been stunted by the Chinese wall of communication. Collaborating
across firms and with the regulators is necessary to bridge the technology gap.
Regtechs are already partnering with regulators. Who’s in your corner?
Machines have the power to bring disparate datasets together and draw behavioral patterns.
Don’t you want to predict where your next compliance risk will come from?

68. 67
Expert-level regtech research

69. CBInsights.com
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