9 Regulatory and Compliance Regtech Startups

August 17. 2017. 8 mins read

Most people have the wrong understanding of why “human” resources (HR) exists in a firm. They think that HR is there to make sure everyone is treated fairly and given participation medals which is only part of the story. The real reason (and only reason) HR exists is to protect the company’s interests by bringing in the best labor for the cheapest cost and then making sure the labor never decides to sue.

In today’s America where you can be burned at the stake if you don’t subject yourself to the latest groupthink de jour, it is especially important to be aware of what liabilities you have that could potentially result in a damaged reputation. In the (largely) boring world of finance, few risks are more grievous than regulatory and compliance offenses because of the money at stake. That’s why the bright minds at CB Insights included 13 different risk and compliance “regtech startups” (remember our article on regtech?) in their Fintech 250:

If you work in finance, then you’ve probably yawned your way through a fair number of compliance training videos which are largely as useless as the people who created them. The only reason they show you those videos is so that they can say they did should the regulators ever come knocking. If you’re a Chief Risk Officer these days, you need something that you won’t lose sleep over – and it’s not a bunch of useless videos. What you need to do is shift the responsibility to someone else, like one or more of the regulatory and compliance regtech startups you see listed above. Of those 13, four are involved in identity verification (Trulioo, Verato, Onfido, and Socure). Identity verification is an interesting topic unto itself, so we’re going to address that in a separate article next week. For now, let’s look at the other nine regtech startups working on regulatory and compliance applications.


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Founded in 2009, Irish startup Fenergo has taken in $80.43 million in funding from investors that include asset management group Investec (LON:INVP). In banking, there’s something called KYC which stands for Know Your Customer. Banks have entire teams (lots of John in Mumbai types) working around the clock on this stuff because each client relationship situation is unique and the regulations differ by jurisdiction. It all boils down to preventing money laundering by making sure the customer is who they say they are, cross-checking them against lists of “bad people”, and monitoring their transactions over time. Fenergo automates the entire “client life cycle management” process using technologies like robotic process automation, artificial intelligence (AI), and blockchain technology. One global investment bank operated 37% more efficiently (in other words, 37% fewer headcounts) using Fenergo’s platform which is why they have loads of big banks that have signed up from all over the world.

Update 02/12/2020: Fenergo has raised $80 million to continue growing its business. This brings the company’s total funding to $160.4 million to date. 

Digital Reasoning

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Founded in 2000, Tennessee startup Digital Reasoning has taken in $73.96 million from 6 rounds of funding that include participation from NASDAQ, Goldman Sachs, and Credit Suisse. We first came across this startup in our article about “Artificial Intelligence (AI) as a Service” and since then they’ve come out with a product offering called Synthesis. Here’s a diagram describing the technology which only an MBA would understand pretend to understand:

In simpler terms, Digital Reasoning wants you to turn over all your data to them and they’ll give you loads of insights in return. It’s like adding “the brainpower of thousands of people to your team” they say, and here’s an example of what that translates to in hard numbers:

Synthesys had delivered impressive results to institutions including UBS, Goldman Sachs, Point 72 and many others with documented outcomes such as a 250% increase in detection acuity, 50% reduction in false positives, and a quadrupling in efficiency making it feasible to extend electronic communications surveillance to 100% of employees.

Seems like every other day you see a new area that cognitive computing is besting humans in, and given what we’ve seen, finance has a lot of low hanging fruit in that respect.


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Founded in 2009, British startup OpenGamma has taken in $37.45 million in funding from investors like Accel Partners and the Japan Exchange Group to develop a solution that helps manage derivatives risk. If you’re familiar with a stock option, then you’re familiar with one form of derivatives. These are financial instruments that are used for leverage, hedging and other boring things that investors bother themselves with. Most people probably don’t know that the total value of the world’s derivatives contracts dwarf pretty much everything:

That’s a $600 trillion “total addressable market” that as you can imagine is subject to a great deal of regulation and which OpenGamma can continue to address with their platform.


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Founded in 2015, San Francisco startup Token has taken in $18.5 million in funding so far to develop a technology that will “transform the way the world transacts”. In order to understand that grandiose statement, we first need to understand a new regulation referred to as the “Revised Payment Service Directive” or “PSD2”. Here’s a simple explanation from Transferwise on what PSD2 means:

PSD2 will break down the bank’s monopoly on their user’s data. It will allow ‘merchants’, businesses like Amazon, to retrieve your account data from your bank – with your permission. That means when you buy something they can make a payment for you, without having to redirect you to another service (like PayPal or Visa).

Token is a PSD2 compliant solution which reads the data from the bank network and turns it into a “smart token” so that the original data never leaves the bank network. According to an article by Finovate, this is expected to “eliminate mass security breaches, reduce fraud” and “define value as something beyond just money“. They also talk about “self-validating transactions” and “programmable money” which sounds a whole lot like some blockchain startups we’ve written about before.

Droit Financial Technologies

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Founded in 2012, New York startup Droit Financial Technologies has taken in $16 million in funding so far from investors that include Goldman Sachs and Wells Fargo. The platform allows institutions to examine the full global cross-regulatory implications of a single trade like who you can trade with, what you can trade with them, and where you can trade it. All data stay in your environment alleviating any privacy concerns. Just to give you an idea of the complexity here, Dow Jones classifies 25 countries as developed markets which would represent 625 unique pair combinations for any one trade. Droit can make sure you’re taking each unique situation into account.


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Founded in 2007, Israeli startup EverCompliant has taken in $13 million in funding so far to develop a solution to combat transaction logging and money laundering. If you don’t know what transaction laundering is, here’s an example of how it works. If you want to buy a bag of weed in Washington DC, you can’t just go into a store and buy it. However, you can go into a store like King Weedy and buy a t-shirt that comes with a “free gift” (a bag of DC’s finest skunk):

That’s a simple example of how transaction laundering might work and EverCompliant’s SaaS solution helps uncover transaction laundering without slowing down transaction speed. In one case, a European bank decided to use the solution to monitor over 4,000 merchants. Prior to that, they were receiving on average four to five fines of $200,000 each every year for transaction laundering. Those have since been completely eliminated.


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Founded in 2014, New York startup ComplyAdvantage has taken in $8.2 million in funding to build a global proprietary “Anti Money Laundering” (AML) database that helps identify bad people. They do things like screening 5-8 million media pages a day to see if your client is linked to terrorism or crime with breaking news processed in less than 30 minutes. Other things to lookout for are entities that fall on government, regulatory, or law enforcement watch lists around the globe. We weren’t surprised that they’re doing all this with machine learning. With PWC claiming that 90-95% of all AML risk alerts are false positives, imagine how much money you’re going to save by adopting this solution.

Update: 02/08/2019 – Mimiro, formerly ComplyAdvantage, just raised another $30 million bringing their total funding to $38.2 million to date.

Merlon Intelligence

Founded just last year, Merlon Intelligence has taken in $7.65 million in funding from a venture capital firm called Data Collective who was responsible for the startup being founded in the first place. A partner at Data Collective, Bradford Cross, left the firm to start Merlon Intelligence (it’s his third startup) which makes us wonder why we don’t see this happen more often. Not much has been disclosed about Merlon Intelligence but we did find an informative article on political commentary and technology news site TechCrunch which said Merlon is using natural language processing to scour PDFs and other unstructured sources of text to then create “contextual knowledge” which is what Digital Reasoning is doing (the company we discussed earlier). The article goes on to quote Mr. Cross as saying the following:

The smallest of compliance slip-ups can cost banks millions of dollars — fines across the industry are expected to surpass $20 billion this year.

As you can guess, Merlon thinks they can get a chunk of that $20 billion by identifying suspicious activity with a “human in the loop“. Over time, the AI algorithms get better and better so the human can move on to more value-added activities – like job hunting.


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Founded in 2007, Bangalore startup Perfios (stands for Personal Finance Operating System) has taken in $6.1 million so far from investors that included top-tier venture capital firm Bessemer Venture Partners who funded their $6.1 million Series A in April of this year. They predominantly operate in India and offer a service that lets any bank or fintech analyze someone’s financial profile in a matter of minutes. One use case for their technology is the “one click home loan” which is offered by an $8 billion Indian realty company called Indiabulls. The user simply authenticates to their bank account and in the next 5-10 seconds, their bank statement is downloaded and analyzed to determine the customer’s capability to pay back a mortgage.

We’ve expressed a concern before about how some AI-powered personal finance software just invites itself into your bank account and then sits there watching every one of your transactions in real-time. At least the Perfios method is less invasive. This is kind of like the notion of a new “big data” credit score we’ve written about before, and Perfios already has over 120 clients on their roster including some of India’s biggest financial institutions.


A tremendous amount of time, money, and resources are poured into compliance and regulatory functions and that’s likely to change very quickly as AI steps in to govern everything in financial institutions. If that’s one less cheesy video that corporate slaves have to endure every six months then we’re all for it.


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