Trust is the foundation of our society, and I’ve dedicated my career to building it within the financial industry. As the Chief Information Officer at Capri Global Capital, I’ve seen how crucial trust is, not just for customers, but for the entire economy.

Why do we need regulations? Most of us don’t like being regulated; we value our freedom. But as the saying goes, “With freedom comes great responsibility.” Without regulations, our society would be riddled with fraud, instability, and a lack of public trust.

Why Regulations Are So Important

Regulations are crucial for building and maintaining public trust, which is the foundation of every functioning society. They exist to:

• Protect Consumers
• Maintain Fair Competition
• Ensure Market Stability
• Prevent Crime and Abuse
• Safeguard Society and the Environment

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Viksit Bharat: A ‘White Economy’

India has a vision to become a developed economy, a Vikasit Bharat, by 2047. We cannot achieve this without becoming a ‘white economy’ built on trust and regulation. A white economy brings several benefits such as:

• Increased Government Revenue: When more people are brought into the tax net, the burden on the few is reduced.
• Transparency and Accountability: Citizens will be able to demand more transparency and accountability from the government.
• Improved Resource Allocation: More resources can be allocated for the benefit of citizens.
• Economic Growth and Stability: Providing stability to every family through economic growth.
• Reduced Inequality: A developed, white economy can provide greater social security, helping to reduce inequality.

What is RegTech?

Regulatory Technology, or RegTech, refers to technological solutions that streamline and improve regulatory processes. While FinTech is focused only on finance, RegTech can be applied to many other areas. The true potential of RegTech lies in its ability to transition from a Know Your Customer (KYC) to a Know Your Data (KYD) approach, which allows for a deeper understanding of customer behavior and data.

The evolution of compliance has been significant:

• 1990s: Compliance was manual and paper-heavy.
• 2000s: We saw the rise of early digital tools like spreadsheets and rule-based systems.
• 2010s: This decade brought the rise of dedicated RegTech startups.
• 2020s: We are now in the era of AI-driven real-time monitoring.

The key components of RegTech include:

RegTech Beyond Financial Services

While RegTech is essential for the financial industry, its application goes far beyond banking and financial services (BFSI). It is about compliance anywhere and everywhere. RegTech solutions are also being used for:

• Data Protection & Privacy: Compliance with laws like GDPR and CCPA.
• ESG & Sustainability: Adherence to laws like CSRD and TCFD.
• Health & Safety: Compliance with standards like OSHA and ISO 45001.
• Cybersecurity Compliance: Following laws such as ISO 27001 and NIST.
• Tax & Accounting: Managing compliance with GST/VAT and FATCA.

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Understanding AML and KYC

AML: Detect and prevent illegal money flows

Anti-money laundering (AML) is the process of detecting and preventing the flow of illegal funds. This is a continuous process that involves:

• Customer Onboarding: We screen new customers against global sanctions lists, such as OFAC, and check if they are Politically Exposed Persons (PEPs). AI and Natural Language Processing (NLP) tools are used to scan global news for any negative reports.
• Transaction Monitoring: We can monitor transactions for suspicious amounts, high-risk geographic locations, or sudden spikes in volume. This also helps detect smurfing, where frequent small transactions are used to avoid detection thresholds.
• Suspicious Activity Reports (SARs): AI helps us automatically generate SARs when suspicious patterns are detected. For example, a bank might flag a customer who suddenly starts sending large amounts to sanctioned countries.

Recent enforcement cases highlight the importance of these tools. For instance, TD Bank faced a $3 billion settlement for failing to monitor suspicious transactions, and Mounties Club in Australia was found to have allowed millions in suspicious cash gambled through their machines.

KYC: From Knowing a Person to Knowing Their Data

Know your customer (KYC) is the process of verifying a customer’s identity to prevent financial crime. Today, AI is transforming this process by enabling:

• Automated Document Verification: AI-powered Optical Character Recognition (OCR) quickly and accurately extracts data from IDs thus reducing manual errors.
• Biometric Authentication: AI analyzes facial features to prevent identity fraud during remote onboarding.
• Enhanced Risk Profiling: AI models analyze customer behavior to assign dynamic risk scores.

Recent advancements in India, such as e-KYC and Aadhaar integration, have allowed for instant verification and reduced paperwork. There is also a shift toward Continuous KYC, moving beyond one-time checks to ongoing monitoring of risk factors.

Emerging Trends in the RegTech

The regulatory landscape is constantly evolving to address new risks, and RegTech is at the forefront of this change. Some key trends include:

• Crypto & Digital Assets Regulation: New rules are being developed around digital currencies and blockchain.
• AI-Driven Predictive Compliance: Unlike traditional, reactive compliance, predictive compliance proactively identifies potential issues by analyzing patterns and anomalies in real time.
• Decentralized Identity Management (Self-Sovereign Identity): This modern model gives individuals full control over their personal identity information, allowing them to securely own and manage their data.

RegTech: Our Financial Future

The future of compliance is digital, and RegTech is the engine driving this transformation. For anyone looking to be a part of this exciting and critical field, I would recommend courses that delve into digital transformation in finance and regulatory compliance. Online programs such as MBA in Finance, BCom (Professional) provided by Manipal Academy of Higher Education are a great way to gain the skills needed to help institutions build trust and navigate the future of regulations.