London to lead growth in RegTech investments as sector set to soar in 2017
London is set to lead a dramatic growth in the regulatory technology (“RegTech”) industry, according to new research from FinTech Global, a specialist data and intelligence firm.
Key findings of the research are as follows:
• RegTech investments have more than tripled over the last five years.
• London has established itself as the global leader in RegTech deals.
• Growth is being driven by an increase in investments in anti-fraud companies.
• Investors expect strong growth to continue and London to maintain its leadership position.
RegTech investments increase by 3.5 times
Over the last five years, investments in RegTech companies have grown by 38.5% (CAGR). Last year a record $678m was invested in 70 companies, compared to $185m in 32 companies in 2012. Q1 was a record quarter in terms of deals completed (21) whilst Q3 was a record in terms of volume ($305m).
London leads other cities
London takes the tops spot for the city with the most RegTech deals with 39 investments between 2012 and 2016. The next six locations in the city rankings are based in North America. Dublin and Paris are the only other European cities to appear in the ten. The largest six RegTech deals in London last year raised over $65m from some of Europe’s leading venture capital firms. For example, Onfido raised a $25m round led by Idinvest Partners, which was the largest deal in the sector in London last year, followed by Featurespace, which raised $9m from TTV Capital, and ComplyAdvantage, which was backed by Balderton Capital with $8.2m. Elliptic raised a $5m Series B round from Paladin Capital Group, Octopus Ventures, Santander InnoVentures, KRW Schindler and Digital Currency Group. Encompass collected $4.7m from Adcock PE and Scottish Investment Bank. Although the industry is seeing an increase in larger investments, the majority of RegTech deals financed in London are early-stage. Accelerators have had a key role to play in the development of the sector. In fact, three of the top ten most active RegTech investors worldwide (in terms of numbers of deals) are based in London: Techstars, Wayra and StartupBootcamp have made 21 London-based RegTech investments between them averaging $70k per investment.
More investments in anti-fraud companies
Backing for anti-fraud companies has overtaken compliance-focused companies over the last year. Investments in companies in the anti-fraud sector have jumped from $82.2m in 2014 to $334.8m in 2016. As a subsector of RegTech, it has increased from 14.1% of all investments to 49.4% in 2016.
Investors eager for more RegTech
According to active FinTech investors in the FinTech Global network, the outlook for RegTech, and for London in particular, is very positive. As financial institutions continue to face everincreasing regulations, accompanied by spiralling costs and complexity, they become even more receptive to innovative companies that can offer technology-based solutions. “It is an area that is fragmented, requires a lot of cost for banks and puts pressure on the customer experience. It is a great place to attack with tech: there’s a big pool full of inefficiencies, it’s a big headache for clients and as such big gains can be made.”, says Radboud Vlaar, partner at venture firm Orange Growth Capital. Many investors believe London has distinct advantages over other cities and will continue to attract the lion’s share of RegTech investments in Europe. In addition to the availability of talent and capital the supportive stance of the FCA receives a lot of praise from investors and company founders alike. “Traditionally the UK has been the heart and soul of opportunities for regulated disruptors. The regulators have been extremely thoughtful, values-based and not especially litigious. That creates a really friendly environment”, says Damian Kimmelman, chief executive, Duedil, a business intelligence company.
In the opinion of Nektarios Liolios, CEO of Startupbootcamp Fintech Programme, it’s still early days for the sector, which is why so many deals are early stage, but deal-size is expected to grow as the industry evolves: “There aren’t that many late-stage RegTech companies to invest in, give it a couple of years and it will be very different”.
The data for this research comes from the Fintech Global database, which provides up-to-the minute intelligence and analytics on trends, deals and companies across all FinTech sectors around the world. For more details from the report and from the interviews conducted with RegTech investors and innovators, visit www.fintech.global
Information partner: Fintech Global
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