Proximity to the institutions, an emerging ecosystem, first success stories. Brussels has what it takes to position itself as a regtech hub.
When trauma gives birth to a sector... Regtechs were born out of the ashes of the 2008 financial crisis. Financial authorities around the world strengthened the rules applicable to banks in order to prevent them from slipping again. Accounting foundations, process control, risk and asset management, etc. The impact was profound, making banking processes increasingly complex.
In response, new start-ups are emerging to exploit advances in artificial intelligence. Young tech start-ups are developing solutions that enable banks to digitally verify the identity of their customers (KYC or ‘know your client’ solutions) and confirm their authenticity. Or to assess the level of risk of fraud or money laundering they may represent (AML or anti-money laundering solutions). Others are designed to incorporate new requirements in terms of data management and protection.
Brussels' regtech assets
According to the fintech.global website, the regtech sector is currently valued at nearly 16 billion USD. Europe has its champions, including Ireland's Fenergo, with annual sales of 139 million euros. And Brussels also has its success stories.
The most well-known is undoubtedly the Itsme identification application, which has 7 million users. Then there's b.fine. Founded in 2017, this specialist in regulatory reporting was acquired in 2022 by another major player in the sector, Germany's Regnology. Vadis Technologies, which specialises in third-party risk management, was sold to the American giant Moody's this summer. It has equipped the Commission's services to detect fraud and corruption, and developed a tool to help identify the directors and ‘beneficial owners’ of companies established anywhere in the world.
These companies were not created in Brussels by coincidence. Proximity to the European institutions, a source of constant exchanges with the regulatory authorities, is a major asset. Added to this is the quality of life and low cost of living, which attracts talent from all over the world. Finance.brussels, Agoria and Hub Brussels have also singled out regtechs as one of their priority areas for support.
With players such as Bancontact, Swift and Euroclear, there's also a real fintech history in Brussels,’ explains Jean François Heering, former CEO of Vadis and now a consultant for Moody's. ‘We've missed a few trains in KYC and AML. With its powerful banking ecosystem, London has taken the upper hand, but the European regulator is here and the remaining potential is very great’, he stresses.
ESG wave
In fact, over the years, regtech has extended its services to other complex regulations that companies have to comply with. It's not just banking and financial legislation that is multiplying. ‘CSRD, CSDDD, taxonomy... A tsunami of new ESG rules is arriving. Investors, banks and regulators in particular need data to assess companies from this angle,’ Jean-François Heering confirms.
As a result, in addition to data structuring specialists such as data.be, many companies are developing solutions for collecting, analysing and communicating data on ESG performance. There are several in Brussels, including D-Carbonize, Tapio, Wequity and of course Greenomy, whose international ambitions are supported by Euroclear, which has become a shareholder.
Jean-François Heering, who is also a director and head of regtech within the Fintech Belgium sector federation, also stresses the need for public support and the involvement of venture capital funds to complete the ecosystem. He is delighted to see that Syndicate One, a network of Belgian tech founders and investors, recently successfully set up its first €6.5 million fund. ‘It's a good step, but there's still a lot of momentum to be created’, he insists.
Administrative simplification
The European Commission has recently expressed its desire to simplify regulations in order to help companies apply the new requirements without overburdening their operations. Is this a risk for the sector? Not necessarily. ‘Rather than focusing on the ‘what’, this new Commission is going to concentrate on the ‘how’, helping companies to translate the rules into operating procedures. But the burden of integrating the standards will remain on the shoulders of the companies themselves. It is on their side that the market opportunities will lie', Jean-François Heering predicts.
The AI effect
Artificial intelligence is nothing new for a sector whose risk management tools rely on complex calculations and powerful algorithms. However, advances in generative AI and large language models (LLM), which enable content to be produced and processed in a ‘human-like’ way, should give it a further boost. For example, in filling in forms and automating ESG reporting - this is the niche being exploited by Greenomy and Wequity - or capturing and analysing text or speech to identify fraudulent behaviour.
AI is also an important area for regulation in its own right. Brussels is the birthplace of the AI Act, the first regulation designed to ensure that AI systems are safe and respect the fundamental rights of citizens and the values of the EU. Faced with this challenge, a number of Brussels-based organisations are taking a stand. These include Belfius, which has taken a stake in Mistral, the European ChatGPT. Or FARI, the ULB and VUB initiative that aims to put the common good at the heart of AI. For Jean-François Heering, who also points to the openness to dialogue shown by the European Commission, all the elements are there for a stimulating exchange. The European capital could thus become a platform at the cutting edge of AI regulatory issues. All the more reason to promote a third wave of ‘Made in Brussels’ regtechs.