Regtech

1. Down with the fintech ship

   Fintech’s slowdown this year has taken a big toll on dealmaking — and regtech has suffered too. Sifted tracked only 12 fundraising rounds in H1 2023, against 25 for the same period in 2022 and 30 for 2021.

   The 2021 regtech uptick that validated the likes of Veriff, Onfido and Shift Technology hasn’t created the expected cash chains at earlier stages. But at later stages, financial crime prevention startup Quantexa — one of only three unicorns minted this year in Europe — raised a healthy $153m Series D.

2. Yes, AI is here too

   The European AI Strategy, proposed by EU policymakers in 2021, was designed to ban some risky AI applications like social scoring, manipulation and some instances of facial recognition. Amends were made to the draft law in June, obliging disclosure of copyright-bound training data for GenAI models.

   AI startups will face heavy fines and reputational damage if they’re noncompliant with legislation; some far-sighted regtechs — a share of which are also AI-powered — are now focusing on de-risking AI applications for auditing.

3. Money is in the data

   Regtechs are great at dealing with financial data, but they’re not limited to it. Data compliance models lend themselves well to wider datasets — from sensitive customer information to document automation software and GDPR analysis.

   Startups that manage to expand beyond fintech applications will likely get a headstart on future funding, and breaking into adjacent sectors — eg. legaltech — to support regulation-sensitive companies in their data compliance processes will be vital to the sector’s growth.

4. US-not

   European regtechs have taken the lead on the global scene, bringing in 50% of total funding in 2023 and surpassing amounts raised in more loosely regulated ecosystems across the pond.

   While this lead may slip as VCs retreat this year, European regulators’ various efforts to bring the tech world to heel will inadvertently keep creating capital pools for compliance-focused ventures. The risk lies in scaling: domestic markets are substantial, but regtechs will find obvious hurdles in markets that don’t need them so much.

Who early stage startups are up against