Regtech Start-Ups Are Focusing On Data Management, Investor Says

Early-stage "regtech" companies are increasingly aiming to solve the data management problems of market participants, an investor told delegates at the IDX 2016 conference in London this week.

Mark Whitcroft is a founding partner at London-based Illuminate Financial Management, a venture capital firm with a focus on early-stage businesses in capital markets. He said the regtech start-ups Illuminate sees are generally aimed at solving for specific regulations.

"From an investment standpoint, we have a broad remit when it comes to regtech, and we have seen about 650 firms in the last year and a half. A large proportion of those you could consider regtech. A significant chunk [are focused on the] buy side, but there is also a huge portion that is sell side. They cross the entire organization, from pre-trade right through to post-trade and reporting."

Data management is surfacing as an area of focus for these firms, said Whitcroft, as they look to offer products and services that can help with the requirements of upcoming regulation in both the US and the EU.

"This might be large organizations trying to solve for regulators asking where certain pieces of their information are coming from. This is also overlaid with internal data policies that play out in the large organizations, and allowing data to leave the organization and go to external vendors as well," he said.

Illuminate is seeing the decline of end-to-end solutions among these young businesses as they target a particular aspect of the workflow. "As a result, partnerships and collaborations are springing up all over the place. These may be start-up-to-start-up, or start-up-to-incumbent," Whitcroft said.

He gave the example of CloudMargin, a cloud-based platform for collateral and risk management. An Illuminate capitalized company, Opengamma, provides the initial margin validation and Markit the portfolio valuation to the CloudMargin workflow.

"Collateral management doesn't necessarily sound like regtech, but if you look at EMIR [European Market Infrastructure Regulation] coming into effect, a lot of the buy side are now looking at solving for a solution away from Excel spreadsheets."

While disruption is a concept that has come to be associated with fintech, one must be careful using the word in relation to regtech, Whitcroft said. "This is because regtech or capital markets technology is for the most part enabling incumbent institutions to do things more effectively."

He concluded: "Fintech is not new. As we all know, it has been around for a long time; it is quite entrenched now. Regtech, on the other hand, given the fining environment that a lot of institutions have had to deal with, has now got a separate bucket because everybody is a lot more focused now—the fire under people's feet is a lot hotter."