Regtech The Game-Changing Tech That Could Rescue Pakistan’s Future

In the heart of Pakistan, where dreams of a brighter future often collide with the harsh realities of outdated systems and widespread corruption, the need for transformation is urgent. Public dissatisfaction with government officials and public services has reached a tipping point. The financial burden of maintaining an outdated public sector is staggering. Paying government employees costs a whopping Rs. 3 trillion, while pensions add another Rs. 1.5 trillion to the bill. On top of that, project workers and employees in government companies rack up an additional Rs. 2.5 trillion. These eye-watering figures, highlighted in the study titled “Lifetime Cost of Public Servants,” paint a clear picture of why a radical overhaul is desperately needed. But there is hope on the horizon in the form of regulatory technology, or Regtech. 

Regtech is a powerful tool that uses advanced technologies like artificial intelligence, blockchain, and data analytics to make regulatory processes more efficient and transparent. For Pakistan, adopting Regtech is not just about keeping up with the times, It’s about transforming the way public services are delivered. It’s about making government operations smoother, reducing corruption, and restoring trust in public institutions. 

In a country where traditional bureaucratic systems often result in long delays and inefficiencies, Regtech can automate and streamline many of these processes, it becomes much harder for corrupt practices to go unnoticed and opportunities for bribery and favouritism. 

Imagine a system where government services are delivered quickly and accurately, without the need for endless paperwork and countless visits to government offices. It means creating a government office that works for the people, not against them. 

This article is the third in a series exploring critical issues facing Pakistan, following our discussions on Digitization Challenges and Fintech adoption in Pakistan. Here, we delve into the concept of Regtech, its potential to revolutionize public services in Pakistan, and practical strategies for its implementation. We will also discuss the challenges and considerations of adopting Regtech in Pakistan’s public sector and share real-world examples of Regtech applications globally to illustrate its potential impact.

Breaking the Barriers: Fintech Adoption in Pakistan

What is Regtech 

Regulatory technology, commonly referred to as Regtech, encompasses a range of technological solutions designed to help organizations comply with regulatory requirements efficiently and effectively. These technologies leverage big data, artificial intelligence (AI), machine learning (ML), blockchain, and other advanced digital tools to streamline regulatory processes and reduce compliance costs.  

Key Features of Regtech 

Automation: Regtech automates compliance processes, reducing manual intervention and minimizing human error. 

Real-time Monitoring: It enables continuous monitoring and real-time reporting, ensuring timely detection of compliance breaches. 

Data Analytics: Advanced analytics provide insights into compliance trends and risks, facilitating proactive decision-making. 

Cost Efficiency: By automating and optimizing regulatory processes, Regtech significantly cuts compliance costs. 

Importance of Regtech for Pakistan’s Public Service 

In Pakistan, the public service sector faces numerous challenges, including bureaucratic inefficiencies, corruption, and a lack of transparency. Regtech has the potential to address these issues and transform the sector in several ways. 

In 2021, the global RegTech market was valued at USD 8.7 billion and is projected to soar to USD 29.2 billion by 2027, growing at an annual rate of 23%. North America, the UK, and Europe dominate this space, making up 85% of the market due to their stringent regulations, advanced technology, and significant investments. This trend is expected to continue through 2027. Conversely, South America is anticipated to contribute only 0.01% of the revenues. 

Enhancing Transparency and Reducing Corruption 

One of the most significant benefits of Regtech is its ability to enhance transparency. By automating regulatory processes and providing real-time access to compliance data, Regtech reduces opportunities for corruption and promotes accountability. This is particularly crucial in Pakistan, where corruption has been a persistent challenge. 

RegTech solutions offer customized, real-time data to generate insights such as trend analysis and key performance indicators (KPIs) for risk monitoring, market dynamics, and compliance tracking. They also bring advanced data analysis capabilities, uncover hidden risks, provide consolidated regulatory reporting, and assist in decision-making processes. 

Improving Efficiency and Service Delivery 

Regtech can streamline administrative processes, reduce paperwork, and automate routine tasks, leading to improved efficiency. This, in turn, enhances service delivery and ensures that public services are delivered in a timely and effective manner.  

For instance, using artificial intelligence to analyze 1.5 million regulation documents can be done in minutes, whereas manual analysis would take several days. 

Strengthening Risk Management 

With advanced data analytics and real-time monitoring, Regtech enables proactive risk management. This is essential for maintaining the integrity of the public service sector and ensuring that potential issues are identified and addressed promptly. Additionally, it helps process large data volumes and uses predictive analytics to identify hidden risks, compliance breaches, and business liabilities, providing early warnings. 

Facilitating Compliance with International Standards 

Pakistan is increasingly engaging with international organizations and adhering to global standards. Regtech can help the public service sector align with these standards by providing automated compliance solutions and ensuring adherence to international best practices. 

Cost Savings 

By automating regulatory processes and reducing the need for manual intervention, Regtech can lead to significant cost savings. This is particularly beneficial for a developing country like Pakistan, where resources are limited, and efficient resource allocation is critical. 

Research indicates that an organization with 10 million customers can cut annual costs by up to 40% through enhanced “Know Your Customer” processes. Another study suggests that using regulatory tools for electronic invoicing and tax compliance could save around billions over the years. 

How to Execute Regtech in the Public Service Sector 

Implementing Regtech in the public service sector involves several strategic steps. These steps ensure that the technology is integrated seamlessly and delivers the desired outcomes. 

Assessment and Planning 

The first step is to assess the current regulatory landscape and identify the specific needs and challenges of the public service sector. This involves mapping out existing processes, understanding regulatory requirements, and defining clear objectives for the Regtech implementation.  

Selecting the Right Regtech Solutions

Given the diverse range of Regtech solutions available, it is crucial to select those that align with the sector’s specific needs. This may include solutions for automated reporting, real-time monitoring, data analytics, and risk management. 

Integration with Existing Systems

For Regtech to be effective, it must be integrated with existing systems and processes. This requires a thorough understanding of the current IT infrastructure and careful planning to ensure seamless integration without disrupting ongoing operations. 

Training and Capacity Building

Implementing Regtech requires building the capacity of the workforce to use these new tools effectively. This involves training programs, workshops, and continuous learning opportunities to ensure that employees are well-equipped to leverage Regtech solutions.  

Continuous Monitoring and Improvement

Regtech implementation is not a one-time activity. Continuous monitoring and periodic reviews are essential to assess the effectiveness of the solutions and make necessary adjustments. This ensures that the technology evolves in line with regulatory changes and organizational needs. 

What are the Challenges and Considerations to Implement Regtech in Pakistan 

While the benefits of Regtech are substantial, implementing these solutions in Pakistan’s public service sector comes with its own set of challenges and considerations. 

Infrastructure and Technological Readiness

The successful implementation of Regtech requires a robust IT infrastructure and technological readiness. This includes reliable internet connectivity, secure data storage solutions, and the availability of skilled IT professionals. Addressing these infrastructure gaps is crucial for the effective deployment of Regtech solutions. 

Regulatory Framework

A clear and supportive regulatory framework is essential for the successful adoption of Regtech. This involves updating existing regulations to accommodate new technologies and ensuring that there are no legal barriers to the use of Regtech solutions. 

Data Privacy and Security

With the increased use of digital technologies, data privacy and security become paramount. It is essential to implement stringent data protection measures to safeguard sensitive information and maintain public trust in Regtech solutions. 

Change Management

Implementing Regtech requires a cultural shift within the public service sector. This involves addressing resistance to change, building awareness about the benefits of Regtech, and fostering a culture of innovation and continuous improvement. 

Case Studies: Regtech in Action 

To illustrate the impact of Regtech, let’s explore a few case studies where Regtech has been successfully implemented in the public service sector. 

Digital Transformation in Estonia  

Estonia is often hailed as a pioneer in digital governance. The country has implemented various Regtech solutions to streamline public services and enhance transparency. For instance, Estonia’s e-Residency program leverages blockchain technology to provide secure digital identities, enabling seamless compliance with regulatory requirements. This has not only improved efficiency but also attracted international business and investment. 

Economic Savings: The digitization of governmental processes saves Estonia 2% of its GDP annually in salaries and expenses. This significant saving is largely attributed to the reduced need for physical infrastructure and manual labour. 

Increased Revenue from E-Residency: The e-Residency program has generated substantial economic benefits, amounting to over €180 million in direct economic contributions. This revenue comes from e-residents paying taxes, and registration fees, and investing in Estonian businesses. 

Attracting International Business: By enabling entrepreneurs globally to run companies entirely online, Estonia has attracted numerous international businesses and investments. This influx boosts the local economy through increased business activity and tax revenues. 

Cost and Efficiency Improvements: Digital public services have brought about cost-efficiency improvements by streamlining administrative tasks and reducing paperwork. These efficiencies translate into lower operational costs for the government. 

Encouraging Foreign Investment: Estonia’s digital infrastructure makes it an attractive destination for foreign investors, contributing to a robust financial sector and overall economic growth. 

Boosting Innovation and Entrepreneurship: The supportive environment for RegTech and FinTech innovation draws skilled professionals and entrepreneurs to Estonia, further spurring economic development.

By implementing these digital solutions, Estonia not only enhances its regulatory compliance and transparency but also reaps substantial monetary benefits, positioning itself as a leader in digital governance. 

Automated Tax Compliance in Singapore 

Singapore has implemented Regtech solutions to automate tax compliance processes. The Inland Revenue Authority of Singapore (IRAS) uses advanced analytics and automated reporting tools to ensure accurate and timely tax compliance. This has reduced administrative burdens on both the government and taxpayers, leading to improved efficiency and compliance rates. 

The Inland Revenue Authority of Singapore (IRAS) introduced the No-Filing Service (NFS), simplifying tax filing for eligible taxpayers. The system integrates data across platforms, reducing an eight-page form to a pre-filled electronic form. Now, 2 in 3 taxpayers benefit from NFS and only need to file a tax return if they have changes to report, such measures could save billions over the years. 

Anti-Corruption Measures in India 

India has leveraged Regtech to combat corruption in the public service sector. The implementation of e-Governance initiatives, such as the Digital India program, has introduced automated processes and real-time monitoring, reducing opportunities for corrupt practices. For example, the use of digital payment systems has minimized the risk of financial fraud and enhanced transparency in government transactions. 

Improved transparency and reduced corruption enhance investor confidence, leading to increased FDI. In 2020, India received its highest-ever FDI inflow of $81.72 billion. 

Aargauische Kantonalbank (AKB) and NetGuardians 

Aargauische Kantonalbank (AKB), a bank based in Switzerland, was grappling with rising compliance costs and the challenge of keeping up with evolving anti-money laundering (AML) regulations in both Switzerland and the European Union. To address these issues, AKB adopted RegTech solutions provided by NetGuardians. 

Utilizing artificial intelligence and machine learning, NetGuardians’ solution automated many tasks that AKB used to handle manually. This automation not only improved the accuracy of fraud detection by reducing false positives by 90%, but it also identified new and emerging fraud patterns. As a result, AKB saw a 75% reduction in compliance costs and a 93% decrease in the time spent investigating risks.  

Furthermore, the solution helps AKB stay compliant with the “Customer Security Programme,” which is a recent regulation in Switzerland’s AML framework. Overall, NetGuardians’ RegTech solution ensures that AKB’s AML systems remain up to standard. 

Solaris Bank and IDNow

Berlin-based Solaris Bank was struggling with the evolving regulatory environment in the European Union and the challenge of creating a compliant application process for its fully digital products. To tackle these issues, the online bank adopted RegTech solutions from IDNow. 

IDNow’s solutions ensured compliance with various cross-geographic regulations for automatic identity verification while streamlining the customer onboarding process. This automation covered areas like insights analysis, compliance reporting, data management, and privacy, saving Solaris Bank significant time.  

The result? A fully digital onboarding process that not only complied with European laws such as GDPR and AML but also improved customer experience, achieving an 80% conversion rate. 

SFR and AriadNext  

SFR, a telecommunications company based in Paris, wanted to enhance the in-store experience across its 800+ stores by transitioning to a fully digital onboarding process. This transition introduced challenges related to compliance and data security, especially with European KYC and data protection laws. 

To manage these complexities, SFR turned to two RegTech solutions provided by AriadNext. These solutions utilized artificial intelligence, biometrics, and facial recognition technologies to ensure a secure and compliant customer onboarding process. They also helped SFR meet regulatory requirements like insights analysis and data consolidation in identity management. 

The impact was significant: SFR reduced customer onboarding time to just 12 seconds and cut front- and back-office expenses by 20%. Moreover, the digital onboarding experience not only improved efficiency but also enhanced the overall customer experience while maintaining full regulatory compliance. 

Regtech holds immense potential for transforming Pakistan’s public service sector by enhancing transparency, improving efficiency, and reducing corruption. By leveraging advanced technologies, the public service sector can streamline regulatory processes, ensure compliance with international standards, and deliver better services to citizens. However, successful implementation requires addressing infrastructure challenges, updating regulatory frameworks, ensuring data security, and fostering a culture of innovation. 

As Pakistan continues its journey towards digital transformation, embracing Regtech can play a pivotal role in building a more transparent, efficient, and accountable public service sector. By learning from global examples and tailoring solutions to local needs, Pakistan can harness the power of Regtech to drive positive change and achieve its developmental goals.

Team Nashfact:

Nabeel Shaikh (aka Nabeil Schaik), Founder of Nashfact, is a seasoned chartered accountant and serial entrepreneur who leverages his extensive experience to support businesses in optimising their financial, technological, and operational strategies. He has been instrumental in turning around numerous businesses.

Ubaid ur Rehman, Editor at Nashfact, brings a wealth of editorial expertise and a keen eye for detail, ensuring that the content delivered is both insightful and well-researched. Together, Nabeil and Ubaid have combined their expertise to craft this series of articles, providing valuable insights on the topic.