7 questions to ask before you invest in regtech

Regtech numbers

Technology can ease the complexity of regulatory compliance, but it pays to go into the buying process with your eyes open.

By Cheryl Winokur Munk

To say regulatory compliance is complicated and costly for banks is a no-brainer.

In a recent study of the U.S. banking industry from Wolters Kluwer, 47% of respondents ranked manual compliance processes as a seven or higher concern on a scale of 10. Inadequate staffing was also a top concern for 45% of respondents. To handle these challenges, some community banks are turning to regtech providers to replace some or all of the tasks they previously did in-house.

Before investing in regtech, community banks should do a careful cost-benefit analysis. Here are a few questions to ask.

Quick stat


of bankers cited inadequate staffing as a top obstacle in implementing an effective compliance program

Source: Wolters Kluwer

  1. Do we have a clear need?
    You should perform a thoughtful examination into whether you have the expertise to effectively navigate an increasingly complex and demanding compliance and regulatory system. There might be a better outside option that would save you time, money and headaches in the long term, says Charles Potts, senior vice president and chief innovation officer at ICBA.Be as specific as possible in this analysis. This will allow your bank to focus on finding the best partner for the problem you’re seeking to solve, without getting saddled with unnecessary bells and whistles.
  2. Can we pick and choose which modules to use, versus buying an entire suite of products?
    The more discerning you can be, the less likely it is you’ll end up with something you don’t need, bankers say. Carefully consider whether a solution makes sense for your specific needs, because it’s easy to overbuy when it comes to regtech.“You can buy the biggest technology for the most money, but if it’s not doing what you need it to do, then you’re wasting your time and money,” says Mason Dees, chief technology officer at $1 billion-asset Blue Ridge Bank in Luray, Va., which recently contracted with Adlumin for security information and events management.
  3. Can the product be customized to our needs?
    Some providers are more willing than others to customize their software for a specific bank. This may or may not be important to you, but, at the very least, it’s a good question to ask. It’s also wise to ask whether the provider works with other similarly sized banks to make sure it will be familiar with the needs of a community bank like yours.
  4. How does the provider stack up in terms of technical support and training for us?
    With any new product or solution, it can take time to bring banking staff up to speed. But if the provider is just going to drop you and run after the bill is paid, it’s not a partnership worth pursuing. Talk to the provider’s other customers to get a sense of the ongoing support the provider offers and whether there’s an additional cost for those services.
  5. How much will it cost?
    This is the elephant in the room, and you have to be especially careful to understand what you are paying for. Cost alone shouldn’t be a deciding factor, but rather, what do you get for that price? Ask questions such as: What’s included in the subscription fee? Are training costs extra? What about upgrades or customization of the product? How would the cost be different if we were to add features?A provider should be willing to negotiate, says Ryan Todd, information security officer at $838 million-asset Guilford Savings Bank in Guilford, Conn., which started outsourcing some regtech to Ncontracts about two years ago. He suggests you think ahead in terms of additional solutions you might want to implement down the road. Start with two modules because it’s more manageable, he says, but let the provider know you’re considering adding capabilities. Knowing this, a provider may be more willing to negotiate a more favorable pricing structure. One cautionary note: Don’t expect to reap cost savings right away, Todd says, because efficiencies won’t become apparent until the second year and beyond.
  6. What are the provider’s practices around information and security?
    The last thing you want to do is work with a provider that isn’t set up to protect sensitive information. To that end, be sure you’re comfortable with the provider’s assurances that its technology is secure and yours will be as well, says Dees of Blue Ridge Bank.
  7. Will this be a one-off transaction or an ongoing partnership?
    Because the regulatory environment is constantly in flux, “an ongoing partnership is more important than a transactional one for most community banks,” Potts says. He likens the process of choosing a regtech provider to that of building a house. Think about it like this, he says: Is the provider going to hand you a hammer and tell you to go build a house? Or, are they have going to give you a hammer, a toolbox, a blueprint, a list of materials and a contractor to help you build the house? The latter is the provider you should choose.

Cheryl Winokur Munk is a writer in New Jersey.