Dev Sian, director at IQ-EQ’s MaxComply, discusses the growing need for regtech in the private equity industry.

What is regtech and what has led to an increasing need for these services within private equity?

Regtech is a suite of software products that help organisations adhere to compliance requirements. Nonetheless, regtech means different things to different people.

The need for regtech is dependent on where you are on the spectrum of being a regulated entity and your geography. The firm needs to consider who is demanding it, the vision of the regulator and why they require it. They also need to consider what the regulators expect as they move across jurisdictions.

The market landscape never stands still. Private equity has historically been a manual, paper-driven industry. Therefore, the acceleration of the uptake in regtech services has come from the need for efficiency, scalability, as well as the need to become greener. Those factors have pushed firms to show differentiation in how they approach investment. 

This surge in regtech services adoption has also come from the requirements of investors – who are increasingly questioning managers who don’t use these services. If you can’t demonstrate your controls at the touch of a button to an auditor or regulator, it raises lots of questions as to what else you are not doing in an organised fashion.

How can regtech assist with anti-money-laundering (AML) and know-your-client (KYC) requirements?

There are complexities, and therefore anxieties, in different jurisdictions regarding regulatory requirements. As regulations evolve worldwide, and business is done across borders, AML and KYC requirements become more extensive.

With the effective use of regtech, AML and KYC can go beyond satisfying what a particular regulator needs today; there’s also an element of future-proofing – preventing the need to re-do work in a short space of time, and upsetting your investors by approaching them with the same questions.

Technology has really allowed the process to be a lot more efficient, pain-free and swift. The verification process in how originals and true documents are handled has really stepped up.

How can the use of regtech services be most beneficial to GPs?

We talk with GPs, service providers and investors. They all want the same thing: to look organised, experienced and compliant. GPs need to differentiate themselves from their peers to attract capital, while at the same time fulfilling what investors are looking for in terms of compliance. That therefore makes identifying and verifying investors efficiently a critical step.

In this regard, one of the key things GPs are looking for from regtech services is speed. Regtech has the power to shorten that investor identification and verification step to approximately 15 minutes – compared with a process that historically could have taken weeks, or even months.

What are the drawbacks of not adopting compliance technology? Can firms continue to only use traditional methods to comply with regulatory requirements?

The drawbacks can be significant. The speed and accuracy aspect comes up again here, as inefficient processes can look very bad in front of investors, in turn impacting reputation and commercial success.

Issues relating to staff morale and lack of motivation can also creep up when traditional methods are relied upon. With working from home especially, low morale can spread quickly and seep outside of the walls of the business. 

It’s important for firms to nurture a staff base who are enthusiastic about the work they do. AML and KYC are necessary – indeed, critical – processes, so allowing people to use cutting-edge tools allows them to feel good about the work they’re doing. Visibility and progress status are also minor elements that make a significant difference.

Where does MaxComply complement the growing need for regtech?

MaxComply is, itself, regtech. It’s a proprietary technology IQ-EQ has had for nearly five years, which has evolved in line with technological enhancements and market demands and is now available on a softwareas-a-service (SaaS) basis. We’ve talked already about growing regulatory compliance requirements and the need for efficiency. MaxComply brings a 100% digital interface to all stakeholders during investor onboarding – with innovative capabilities such as facial biometrics for real-time ID validation combined with PEPs and sanctions checks. Our flow takes parties through a fixed but intelligent sequence – so we can ensure total compliance every time, quickly and accurately.

How can regtech assist with ESG and in particular, the EU’s Sustainable Finance Disclosure Regulation (SFDR) compliance?

SFDR requires private equity managers to assess and disclose ESG considerations publicly. In light of this, it’s important that accurate data is being reported and therefore sound decisions are made upon those items of data, in order to best comply with ESG reporting requirements.

Integration is vital, as it allows firms to benchmark correctly. Those are uniform pieces that come from standardisation and good visualisation of data, and helping decision makers move forward with the right data in front of them