Yesterday was day two of Hong Kong Fintech Week and another day of discussions, talks and demonstrations on all things tech in the financial services space.

There was a big focus on regtech and its role in compliance and reporting.

Nick Cook, the Director of Innovation at the UK’s Financial Conduct Authority, expressed his view earlier in the week that regtech is the 'sleeping giant of the financial services world'.

The stats are staggering. In 2017, Thomson Reuters Regulatory Intelligence recorded 56,321 regulatory alerts from more than 900 regulatory bodies globally. It is not surprising then that bank spending on compliance and reporting is estimated to be between $100bn and $270bn a year.

There is no doubt that the regtech market is growing – investment doubled between 2017 and 2018 – but the potential future growth of the sector is huge if the start-ups can align with regulators and banks.

The Hong Kong Monetary Authority (HKMA) is on board. Eddie Yue, HKMA Chief Executive, said this week that 'we want to work with banks and the technology sector to develop regulatory technology'. The aim is to build a community among banks and regtech providers to combat money laundering and terrorist financing in particular.

The Executive Director of the Australian Securities and Investments Commission (ASIC) has gone further, outlining an expectation that banks adopt regtech. ASIC is taking an 'if not, why not' approach. So, if banks aren’t using the latest technology in the compliance space, the regulator will want to know why. This includes regtech offered by start-ups.

The principle is admirable but caution is still required. These start-ups need to deliver technology that meets the needs of each individual bank, keeps up with regulatory and reporting developments, and operates at a standard that satisfies regulators.

That’s no mean feat. As with existing compliance measures, there are risks that improper human behaviour goes undetected or that nuances are missed.

The expectation is that regtech will be better able to address these risks, and reduce the margins for error. But if regtech solutions are pushed through without thorough testing and monitoring – and adopted too early – it could leave both the banks that use the technology and the vendors themselves exposed to potential liability.

As the HKMA has said, collaboration is crucial in order to develop regtech that is alive to the particular challenges that face each individual bank.