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RegTech: Redefining Compliance in European Financial Services

RegTech: Redefining Compliance in European Financial Services

By Pierre E. Berger Joris Latui and Guus Elsbeek, DLA Piper


  1. An Introduction to the Concept of RegTech


The financial sector continues to adopt innovative technologies at an accelerating rate1. Regulatory Technology (or "RegTech" for short) refers to the application of technology-driven innovations to meet regulatory, compliance and reporting obligations by regulated entities, whether independently or with the support of specialized providers, offers significant potential to enhance the effectiveness and efficiency of compliance processes across the European financial system. RegTech seeks to leverage artificial intelligence (AI) based technologies to enable automated risk identification and early warning mechanisms. In doing so, it serves as an important enabler of more digitalised, efficient and effective financial supervision and regulatory compliance.2


The growth of the RegTech market is driven by several converging factors. Financial institutions are subject to increasingly complex and evolving frameworks which are particularly challenging for firms operating across multiple jurisdictions. At the same time, the risk of significant compliance-related sanctions and fines incentivises institutions to strengthen their regulatory controls and avoid heightened supervisory scrutiny.3 Regulatory authorities themselves have also raised their expectations, increasingly assuming that supervised entities will make effective use of available technological solutions.4 Finally, ongoing digitalisation, automation and the shift from on-premises infrastructure to cloud-based systems have facilitated the adoption of RegTech by enabling more flexible, scalable and frequently updated compliance solutions.


However, the use of RegTech is not without its own risks and according to an EBA report from July 2025, the national Competent Authorities of the different Member States identify RegTech-related ML/TF risks primarily in outsourcing (55% rate it significant or very significant due to weak oversight of large-scale arrangements), automation without adequate safeguards (46% cite significant risks from insufficient controls), weak testing, transparency and explainability (around one third highlight institutions’ inability to demonstrate effectiveness), and insufficient in-house skills and experience (36% across all sectors).5


  1. RegTech Applications in Practice


RegTech offerings are commonly grouped into four broad domains: (i) capital adequacy and financial risk management; (ii) governance, risk and compliance (GRC); (iii) cybersecurity and information technology controls and (iv) financial crime prevention. Within each domain solutions address a range of functional segments that correspond to particular regulatory frameworks and obligations.6


With regard to financial risk and capital management, asset and liability management (ALM) enables banks to align their assets and liabilities while controlling key risks such as interest rate movements, liquidity constraints and funding pressures. RegTech solutions can support ALM and related regulatory compliance by facilitating, among other things, fund transfer pricing and liquidity monitoring. These tools also enable dynamic planning, strengthening governance and decision-making in periods of financial volatility. European financial institutions most frequently identify risk management as the primary driver for RegTech adoption.7


For governance, risk and compliance, banks with cross-border operations are subject to a complex and constantly evolving body of regulatory requirements across multiple jurisdictions. Compliance functions must therefore continuously monitor, assess and interpret regulatory developments relevant to their institutions. RegTech can substantially streamline these processes by enabling a more integrated overview of applicable regulations across authorities, legal systems and languages. In addition, such solutions can support the systematic analysis and interpretation of regulatory obligations and assist in aligning them with the existing internal policies, procedures and control frameworks. 


In the area of cyber and IT security, as institutions adopt their governance arrangements and operational practices to meet the enhanced cybersecurity and resilience requirements of the revised Network and Information Security Directive (NIS2), RegTech solutions can assist by identifying gaps between the new legal obligations and existing systems, processes and controls. 


Finally, in relation to financial crime, regulatory regimes such as the European Union's anti-money-laundering (AML) framework impose extensive monitoring obligations on financial institutions with respect to transactions and payment flows, with the aim of identifying and reporting illicit activity; most recently with the introduction of AMLD IV.8 RegTech providers offering technology-driven solutions, combining AI-based analytics with rule-based monitoring systems, can enhance institutions' ability to detect suspicious behaviour while simultaneously reducing the incidence of false positive alerts. 


  1. Conclusion and Looking Ahead


RegTech has developed into a practical and increasingly indispensable response to the growing complexity, volume, and supervisory intensity of financial regulation in the European Union. Its demonstrated applications across financial risk management, governance and compliance, cybersecurity, and financial crime prevention underscore its capacity to strengthen regulatory outcomes while enhancing operational resilience. Against this background, the time has come for both financial institutions and supervisory authorities to actively embrace RegTech as a core component of modern compliance and supervisory frameworks without losing sight of the need to manage the associated risks. Going forward, closer cooperation between regulators, supervisors, and market participants will be essential to foster responsible adoption, ensure technological neutrality, and fully realise the benefits of RegTech in support of legal certainty and financial stability.


1Warren Z., Financial institutions are increasingly eyeing fintech & regtech tools, but so are regulators, February 2023, https://www.thomsonreuters.com/en-us/posts/legal/fintech-regtech-tools-regulation/.

2Chao X. et al., Regulatory technology (Reg-Tech) in financial stability supervision: Taxonomy, key methods, applications and future directions, March 2022,https://www.sciencedirect.com/science/article/abs/pii/S1057521922000035.

3Financial Stability Board (FSB), Enhancing supervision: challenges and opportunities for the EU, September 2025, https://www.fsb.org/2025/09/enhancing-supervision-challenges-and-opportunities-for-the-eu/.

4European Central Bank (ECB), Adapting to technological shifts: supervision in the evolving financial landscape, September 2024, https://www.bankingsupervision.europa.eu/press/interviews/date/2024/html/ssm.in240910_1~121f10c559.en.html.

5European Banking Authority (EBA), A careless use of innovative compliance products can lead to money laundering and terrorism financing risks, the EBA says in its Opinion, 28 July 2025, https://www.eba.europa.eu/publications-and-media/press-releases/careless-use-innovative-compliance-products-can-lead-money-laundering-and-terrorism-financing-risks.

8Directive (EU) 2024/1640 of the European Parliament and of the Council of 31 May 2024 on the mechanisms to be put in place by Member States for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Directive (EU) 2019/1937, and amending and repealing Directive (EU) 2015/849.

 
 
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