Regulatory tech, aiming to streamline compliance, makes inroads in Africa

Regulatory technology, also known as regtech, is starting to make inroads among African businesses and government entities that are adopting a new generation of digital tools designed to streamline the process of compliance with regulations such as data protection laws.

While adoption of regulatory technology is still in a nascent phase in Africa, usage is expected to rise, particularly as internet use becomes pervasive and policies dealing with personal data become a norm across the continent.

A rapidly changing legal landscape and an explosion in data generated by online apps, though, is complicating mass uptake of regulatory applications, according to industry insiders.

Regulatory technology is designed to help companies be compliant with laws or industry regulations. Companies that do business in the EU, for example, must comply with the GDPR, and African countries are in the process of adopting their own data protection laws, such as South Africa’s POPI (Protection of Personal Information Act).

In particular, sectors such as banking, insurance, and healthcare face complex laws regarding how they manage and verify users’ data. A growing number of African tech companies are offering technology to help eliminate the manual tasks that up to now have been needed for  compliance with such laws.

Banks begin to implement KYC technology

“We are seeing a lot of banks being able to transition into digital verification,” said Esigie Aguele, CEO of VerifyMe. The Lagos-based company is one of a new crop of African tech vendors that are using emerging technology such as image recognition and AI to help businesses deal with KYC (know your customer) laws.

KYC rules are generally meant to block illegal access or use of banking systems and often include requirements such as verification of customers’ identity.

VerifyMe provides what they call “compliance as a service” to the banking industry. In Nigeria, for example, the law requires commercial banks to verify and retain certain customer information including ID and phones numbers, and addresses.

VerifyMe uses technology including AI-based face matching and biometric verification to verify identity. Banks and other businesses can integrate their current applications and customer data with VerifyMe’s KYC technology via APIs, according to Aguele.

Aguele believes uptake of his service has been buoyed by the COVID-19 pandemic — which forced companies to perform KYC tasks remotely  — but also by the overall need to use digital tools to streamline the increasingly complex processes needed for compliance as companies, particularly those involved in financial services, face an explosion of data as more and more business is transacted online.

Compliance-related costs increase

Meanwhile, compliance-related costs are rising. The cost of financial regulation compliance in South Africa increased by 43.5% between 2019 and 2020, with 61% of the costs attributed to labour, according to a recent LexisNexis Risk Solutions 2021 report.

As a result, there has been an increase in the adoption of regulatory technology solutions, which are helping organizations to meet their regulatory obligations more efficiently and effectively, the report said.

“We believe that financial firms that invest in regulation technology solutions may be better prepared to deal with the scale and complexity of today’s financial crime compliance landscape, including any sudden changes such as those brought about by the pandemic,” said Pat Hinchin, vice president of strategy at LexisNexis Risk Solutions.

Regulatory tech curbs costs

Regulatory tech can help companies implement streamlined and repeatable due diligence, Hinchin said. This can reduce customer onboarding times, decrease remediation costs, lessen processing times, increase throughput (without hiring more people) and create a more effective means of preventing financial crime over the long term.

Companies in the insurance sector, which also face many regulatory requirements, are along with banks driving use of regulatory tech in Africa.

Last year, for example, ACRE (Agriculture and Climate Risk Enterprise) Africa, a provider of insurance services, announced that it was offering a service that resolves insurance claims via a blockchain-based processing platform from insurance tech company Etherisc. The platform uses the Ethereum blockchain technology’s ability to provide smart contracts — self-executing contracts that let companies create automated agreements that are only fulfilled when specific conditions are met.

ACRE serves insurance companies whose customers are primarily farmers in Kenya, Tanzania and Rwanda. ACRE said that its new service allows all payments to be notarized on the blockchain, and Ethrisc said it consulted Kenyan regulators to ensure that the system meets regulatory requirements.

Governments tap tech to monitor compliance

Regulation technology can also help governments monitor compliance, according to Global Voice Group CEO James Claude. Global Voice offers compliance-monitoring  applications to businesses and governments around the world. Its Visio Suite solution is designed to help governments monitor telecom revenue, area of coverage and quality of service. It does this by connecting government and telecom systems in order to do real-time data collection and transaction monitoring.

“We started to work in Africa about 20 years ago, but exclusively with government agencies, by understanding the challenges they were facing with the development of technologies in the telecom sector and financial sector,” Claude said. Governments had no robust tools to monitor regulatory compliance for industries such as telecoms, he noted.

Regulatory tech uptake faces challenges in Africa

There are various challenges to uptake of regulatory tech, according to LexisNexis’ Hinchin. A general lack of automation, still prevalent in various business sectors throughout Africa, is at least partly part of the reason why regulation tech is not being adopted more quickly, he said. Implementing new systems to handle the increasing volume of data that companies now face, along with new regulations governing that data, can also complicate deployment of regulatory technology.

“Much of this work — such as implementing a risk-based approach, including sanctions screening and regulatory reporting — has traditionally used manual processes that are now struggling to meet the scale and complexity of challenges brought about by increased regulation,” Hinchin said. In a risk-based approach to compliance, organisations identify their highest compliance risks, a process that is often complex in its own right.

Much of the complexity related to compliance is due to the fact that regulatory regimes in different countries have different requirements, are often in different phases of implementation, and are not consistently enforced.

Regulatory regimes differ across Africa

“While national and regional efforts feed into the construction of the regulatory framework for data governance, the robustness of laws varies, implementation is fragmented, and financial and resource constraints restrict effective implementation where laws exist,” according to an analysis from the Tony Blair Institute for Global Change.

Inconsistent regulatory regimes, implementation and enforcement make compliance difficult for enterprises, especially those doing cross-border business, and also create challenges for tech companies seeking to develop applications that adhere to newly enacted laws, according to the report.

Closer collaboration between governments, businesses and tech companies can help pave the way to innovative solutions to compliance requirements, the report adds.

Collaboration and consultation among government entities and private businesses in Nigeria, for example, have led to progressive banking policies and the growth of an open banking regime, with banks, fintech companies and third parties such as insurance, retail and telecoms companies using standard APIs to connect and share data.

This has helped Nigeria become a financial hub, with international banks as well as new local banks setting up shop in the country. As a result, Nigeria’s API-based, open banking initatives are providing a model for the rest of Africa.

While regulatory policies and implementation across Africa are still in flux, the Tony Blair Institute concludes its report on a hopeful note, saying that the headway that has been made so far bodes well for technology innovation.

“African policymakers have made tremendous strides in developing regulatory frameworks for technology and the internet in Africa,” says the report. “These policies have helped nourish vibrant tech ecosystems and growing digital economies across many parts of the continent.”