Regulatory Technology (RegTech) applies technology to improve how businesses manage regulatory compliance, and how governments manage oversight, to benefit consumers, companies and regulators. RegTech plays an important role in strengthening the resilience of the Australian financial system.
BCG and the RegTech Association partnered to produce this report into the Australian RegTech landscape. It is informed by BCG Expand FinTech Control Tower’s in-depth research into RegTechs around the world, interviews with local RegTech executives, and a survey of RegTech Association members.
Finding #1: Australia punches well above its weight in RegTech
Australia is the world’s third largest RegTech hub, behind the US and the UK. Over 10 percent of all RegTechs are headquartered in Australia. Since 2015, growth in Australia (15 per cent CAGR) has significantly outpaced global growth (6 per cent CAGR).
Finding #2: A small, risk averse local market creates impediments for local RegTechs
The local market for RegTech is small, typically risk averse, and often lacks an understanding of RegTech solutions. Investment in local RegTechs has declined by 50 per cent since 2018, while RegTech investment around the world has hit record levels, driven by a sharp increase in US$100+ million ‘mega rounds’. Today, only 1 per cent of the global investment in RegTech is in Australian companies.
The funding mix in Australia skews towards early stage seed and angel investments. This contrasts with international trends, where the funding mix is more balanced across early stage funding and subsequent series A to D.
Insufficient funding opportunities risk leaving Australia’s RegTech companies at a disadvantage, constraining product innovation and ability to scale.
Finding #3: On balance, COVID-19 is expected to create positive momentum for RegTechs
Like most businesses, local RegTechs have experienced disruption during the COVID-19 pandemic. The biggest challenge has been an immediate reduction in revenue. A contributing factor is the slowing of export opportunities, following travel restrictions and the postponement of trade events.
Nonetheless, Australian RegTechs remain positive about future growth and continue to seek growth capital to fund product development, talent acquisition and market expansion. The pandemic has accelerated a shift towards remote working and digital interactions, increasing the risk of fraud and financial crime, and focusing organisations on the importance of robust cybersecurity. At the same time, Federal and State Governments are recognising the potential of RegTech to efficiently and effectively solve regulatory and compliance challenges, and to become a signature export for Australia. This, combined with regulatory pressure for all regulated entities across a range of industries to adopt RegTech, will create a strong platform for the sector to excel.
Finding #4: There are four pillars to the solution to help close the funding gap
There are opportunities for the public and private sectors to support Australia’s RegTechs by:
Collectively, these actions will help Australian RegTechs to scale, creating local jobs, and supporting the export of Australian solutions. At the same time, consumers, companies and regulators will benefit from efficient and effective regulatory compliance and oversight.