The self-defeating spiral of regulatory technology?

By Precious BAIDOO

…When compliance becomes a machine-led pursuit, the problems don’t disappear rather, they multiply.

Patience, a seasoned KYC analyst at a global bank, once reviewed five detailed client files a day. Now, after the firm deployed an AI-led Regulation Technology (RegTech) solution, her system flags fifty profiles daily. But instead of freedom, she’s buried. Algorithmic anomalies, exception alerts and unexplained flags. Her day has turned into a relentless firefight that no curve-fitting model promised to fix.

From the outside, Regulation Technology (RegTech) glitters as it automates due diligence, slashes false positives, speeds onboarding and shrinks compliance budgets. Market analysts peg and value the global RegTech sector at around US$16 billion in 2024, with fluctuations and forecast growth to as much as approximately US$71?billion by 2033. These projections exhibit a compound Annual Growth Rate (CAGR) of 18.0percent from 2025-2033.

Right now, North America, led by the U.S. and Canada, is dominating this particular corner of the market. In 2024 alone, this region claimed over 41percent of global spending, making it the clear frontrunner in a space that’s growing both in urgency and complexity.

What’s fueling this surge? Three forces are converging. First, digital crime is getting more cunning. From sophisticated phishing schemes to elaborate money-laundering networks, cybercriminals are no longer just amateurs in basements.

They’re organized, persistent and frighteningly agile. Second, the digital economy is booming. With more consumers shopping, banking, and transferring funds online, often through mobile apps or embedded financial tools, the attack surface for fraud is expanding rapidly. And third, the cavalry is finally coordinating.

Regulators, financial institutions and tech providers are moving beyond siloed responses to create smarter, more collaborative defences. The result? A cat-and-mouse game that’s escalating quickly and North America is pouring in resources to stay several steps ahead.

Indeed, venture cash tells a sobering story. RegTech funding peaked at US$18.6?billion in 2022, then plummeted to US$5.3?billion in 2023 as rising interest rates and sceptical investors reined in enthusiasm. These figures, reported by FT-area boutique bankers, signal a shift from hype to hard questions on return on investment (ROI) and adoption timelines.

On paper, pitch decks promise up to a 90percent reduction in AML false positives, a 70percent acceleration in KYC onboarding and 50percent cost savings. In practice, independent lab tests show 40–60percent false positive cuts and onboarding speeds improve 15–40percent but only after two or more years of integration.

Net compliance spend drops closer to 18–25percent, once tech, training and data overheads are factored in. And those hidden costs are real. JPMorgan spent US$1.2?billion tidying legacy databases before deploying RegTech, according to published reports and many banks now devote 30percent of compliance hours to deciphering AI-driven decisions for regulators. That’s not efficiency. That’s human resources shifted, not freed.

Then there’s opacity in action. In 2023, an internal AI flagged 98percent of Latin American remittances as high risk, without explanation. The result was a US$45?million fine under discrimination and explainability rules. Regulators from the GDPR to New York’s financial authorities demand algorithmic transparency. But most RegTech platforms aren’t built from the ground up.

Data fragmentation compounds the challenge. One global tier?1 bank operates across more than 2,300 siloed systems, with over 17,000 compliance data fields, many misaligned. Integrating RegTech here is data cartography on steroids. And once integrated, vendor lock-in starts squeezing. HSBC, for example, now pays a 22percent annual premium to its provider after competitors were absorbed in consolidations.

Despite “democratizing compliance,” RegTech seems to favour muscle over agility. Global banks can absorb high costs and reap modest marginal gains. Community banks cannot. With platform pricing beginning near exorbitant prices, a projected 64percent of smaller institutions admit they can’t afford it. Many compliance professionals, promised a transition to strategic roles, find themselves out of a job or under-skilled for the analytics era.

Worst of all, societal results don’t match the rhetoric. The global cost of fraud is estimated at US$5.127 trillion annually. Trade-based financial crime alone accounts for US$1.6 trillion of this total. E-commerce fraud is also a significant concern, with losses predicted to exceed US$48 billion globally this year, according to Juniper Research. Suggesting that automation cleans the desk, not the system.

To add insult to injury, RegTech seems to trigger more regulation, not less. The EU’s MiCA crypto law, launched in 2024, introduced 287 new compliance directives, most of which assume the use of RegTech for monitoring and reporting. And internal comments from the SEC suggest a mindset shift: “If banks automate compliance, we’ll just demand more granular data.”

That paradox will echo loudest in markets like Ghana. RegTech adoption there will be slower and costlier. Ghanaian Tier?1 banks may pilot KYC or monitoring solutions but suffer from an underdeveloped data infrastructure, limited tech budgets and gaps in skills. Without foundational data-hygiene investment, they’ll likely default to hybrid workflows, i.e part human and part machine.

The Bank of Ghana assumes a critical gatekeeper role. It must walk a fine line between enforcing transparency for fintechs and avoiding the regulatory arms race seen in advanced economies. Mandating RegTech without parallel capacity-building risks creating a two-tiered system. Digitally sophisticated incumbents and digitally stranded smaller banks and rural institutions.

Fintechs and payment providers will feel the squeeze. Early adopters might gain regulatory credibility. Others could face licensing threats or investor hesitations. Don’t be surprised when small fintechs partner with legacy banks, combining innovation with compliance pathways. Your guess is right, joint ventures born of necessity. The social cost looms. If onboarding becomes slower and more expensive, Ghana’s financial inclusion gains could evaporate. Compliance must not become a barrier to entry.

In the end, RegTech remains triage, not transformation. It automates the routine, buries human judgment in opaque workflows and begs for better design. The real winners on a global stage and in Ghana will be those who clean their data pipes before installing AI faucets, who design systems around informed humans and who measure ROI not in buzzwords but in sustained, transparent performance. Patience logs off again. Her dashboard still glows. The simple questions are solved. The hard questions? They’re still hers.

>>>Author’s Note: This analysis is grounded in my professional observations and research within Ghana’s dynamic digital finance and telecom ecosystem. While I have endeavoured to provide thorough insights, I acknowledge the evolving nature of financial technologies, shifting regulatory landscapes, and emerging consumer behaviours that characterise this sector. I welcome constructive critique and encourage industry peers, stakeholders, and readers to share their perspectives. By exchanging knowledge and challenging assumptions, we can foster a deeper understanding of digital finance and financial inclusion in emerging markets. Let us engage in meaningful dialogue as we collectively pursue innovation and evidence-based progress in this transformative field.

>>>the writer is a seasoned professional with nearly a decade of experience in Supply Chain Management. He holds a Master’s degree in Procurement and Supply Chain Management and is CIPS, GIPS and CMILT certified. He is also a certified Digital Finance Practitioner (CDFP) with a deep interest in digital payments, digital identity, and emerging technologies. Precious blends his expertise with a passion for innovation. A lifelong learner and student of life, He is committed to continuous growth and leveraging knowledge to drive transformative solutions.

The post The self-defeating spiral of regulatory technology? appeared first on The Business & Financial Times.

Read Full Story