The RegTech Investors Consultative Summit, hosted by Africa investor Group and Dedalus Global, brought together nine global RegTech stakeholders to discuss opportunities for RegTech in the context of the digitization of African economies and the recently adopted African Continental Free Trade Area (AfCFTA).
The Summit, which was Chaired by Hubert Danso, CEO and Chairman Africa investor Group and Chairman, African Union Development Agency (AUDA) Continental Business Network (CBN), builds on the recent Africa investor (Ai) African eTrade Leaders Consultative Summit, held with the Secretary Generals of the International Chamber of Commerce (ICC), Berne Union International Union of Credit & Investment Insurers, AfCFTA, the World Customs Organization (WCO) and the World Trade Organization (WTO). Following the eTrade summit, the CBN requested a follow up RegTech Investors Consultative Summit, to generate concrete recommendations from leading global RegTech stakeholders as part of its Policy Recommendations Statement (PRS), to be submitted by the CBN on eTrade and the AfCFTA to African Union Heads of State in light of COVD-19.
In short, there are significant areas of opportunity for RegTech solutions on the continent, but like any new sector, there will be challenges in the implementation and adoption of such solutions. You can learn more about these by viewing the summit recording here you can also read a brief summary of the opportunities below.
Brief background: Regulatory technology (RegTech), a relatively young category of FinTech, are those technologies that allow for the efficient and effective management of regulatory compliance predominantly for regulated sectors. A primary purpose of implementing RegTech solutions is to mitigate regulatory risk, which was a driving force for their widespread adoption by financial institutions following the global financial crisis in 2008. The category has continued to grow over the past decade as more sectors see the utility of implementing RegTech solutions; so much so, in fact, that there was a 600% increase in global investment during a 5-year period from 2014 to 2019, and a 103% YoY increase in 2019 alone.
Opportunities for RegTech are beginning to take hold in Africa as governments expedite their digitization strategies (a response to COVID-19) and embark on an ambitious regional trade agenda that seeks to boost intra-Africa trade from 18% to 50% by 2035. To meet this target, the US$3+ trillion African Continental Free Trade Area (AfCFTA) will need to reduce the barriers of moving goods, capital, and people between countries; challenges that can partially be addressed through the use of RegTech solutions. Despite the salience of these recent events, however, the sector in Africa is still in its infancy and local RegTech experts and innovators are rare.
During the two hour event on May 28th, panelists identified four major areas of opportunity for RegTech:
- Building Transactional Trust
- Digitizing and Standardizing Documentation
- Cross-Border Trade Efficiency
- Responsible Data Access and Management
As more companies move their businesses online and digital payments continue to replace cash transactions, the lack of in-person interaction creates an opening for solutions that help buyers, sellers, and regulators establish transactional trust. Blockchain verification systems are frequently touted as the solution to this problem particularly because they are nearly impossible to falsify and help eliminate “bad goods” and “bad actors” from participating in an online marketplace.
The digitization of documentation is another area of opportunity that will significantly improve efficiencies and regulatory monitoring in several sectors. One of the biggest issues hindering trade efficiencies in Africa, for example, is that it can take companies months and boxes of paperwork to clear their goods from customs. By digitizing and standardizing documentation, both companies and customs authorities would reduce cost and time inefficiencies while also gaining more confidence in an otherwise opaque regulatory process. That said, the digitization of documentation extends beyond the private sector and will require large amounts of cooperation with regulatory officials. There can be substantial differences between and within countries in the types of documentation required for different sectors/activities and the means through which they are submitted.
The example above highlights a much broader opportunity for RegTech solutions to improve the efficiencies of cross-border trade. In addition to the digitization of documentation, RegTech solutions can make it easier for companies to understand and monitor regulations, and regulatory changes, for their respective sectors in each market. Companies that are better able to manage different regulatory environments and monitor changes in real-time, will have greater confidence in their ability to mitigate risk. Effective risk mitigation coupled with the time and cost-savings it provides, ultimately will result in an increase in cross-border trade. The East Africa region has seen some benefits in this space where organizations like TradeMark East Africa have helped reduce customs processing time from a few hours to 15 minutes.
Lastly, there is the opportunity for RegTech to help entities make more informed decisions by improving access to data. Africa trails the rest of the world in data collection and often, the data that does exist is not accessible. By having access to millions of data inputs, RegTech companies are in a unique position to publish open-source, anonymized datasets that public and private sector entities can leverage to further their respective interests. Companies, for example, may see trends that influence the development of specific products or technologies while governments and regulators may identify priority areas for policy and regulation. The use of this data is also prudent to the crafting of AI and machine learning programs.
RegTech holds the keys to providing solutions for many of the inefficiencies experienced by both businesses, consumers, and regulators in Africa and across the globe. With proper investment, cooperation, and implementation, RegTech can help revolutionize how business and commerce are conducted.