When Russian forces invaded Ukraine last month, the U.S. and its allies imposed severe sanctions on doing business with the eastern power, cutting more than half of Russia’s high-tech imports and restricting its access to technological inputs.
Because those penalties are added on a seemingly daily basis, companies are left in the scramble to make sure they comply — much with the help of a sector that is often unchallenged but enormously growing.
“It’s not a sexy space,” said Martin Markiewicz, CEO and co-founder of Silent Eight — which uses AI to create custom compliance models for financial institutions. “But it’s hard, especially when you have to do it on a global level.”
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Compliance tech — regtech, as some call it — can help companies follow the rules and laws surrounding the worlds of finance, healthcare, privacy and more. As regulations grow along with new laws — such as the European Union’s General Data Protection Regulation — so does the compliance sector as companies try to maintain through automation what they previously did manually.
“Ten years ago, people could spreadsheet these things,” said Mukund Goenka, co-founder and CEO of Regology, which curates regulations around the world to help businesses that followed. “But now, even if you’re in manufacturing or IoT, you can’t do that.”
More regulation, more money
As regulation grows, so does investment in space. While the niche was good just five years ago, investment in VC -supported compliance companies exploded last year — just as data and privacy issues were bubbling up.
The sector has seen a steady increase in dollars invested in recent years: Compliance funding jumped from $ 1.7 billion in 2020 to more than $ 5 billion last year. This is close to $ 1 billion this year after just about 10 weeks.
While the industry has seen more money, it also has more to deal with than ever before — including the wide range of penalties due to the war provoked by a superpower.
“We saw a huge increase last week to this week in the number of sales calls,” Goenka said, adding that the increase was almost 3x.
Regology — which raised $ 8 million Series A last August — maintains a database of laws and regulations for more than 30 countries, and monitors more than 4,000 sources around the world daily to keep customers up to date. its any change that may affect them.
Goenka said the day after Russia’s invasion of Ukraine, a fellow company called him to come out with Y Combinator with Regology. The startup has both Ukrainian and Russian founders.
“They’re like,‘ What are we going to do? ’” Goenka said.
While many only think about money when it comes to announced penalties, Goenka said it’s important to remember that it involves more. For example, the new sanctions could involve a U.S. company that designs a product that is built abroad and sold in Russia.
“It’s very complicated,” he said.
It’s just growing
However, the complexity is not new for the following. As technological advances accelerate, so do regulations.
“Ten to 20 years ago, the world was simpler,” Goenka said. “It’s complicated, but simpler. But change has accelerated. Now governments are looking to safeguard their interests.
The Silent Eight platform helps financial institutions make business compliance decisions about onboarding customers and transactions, and working with authorities when something seems suspicious. The company just closed a $ 40 million Series B last month.
“It’s so complicated here, countries have so many different compliance issues,” Markiewicz said.
“The world is changing around us all the time,” he added. “It doesn’t matter if it’s war or something else.”
UK-based Encompass helps its users — including banks and energy traders — find out who is actually transacting through their platform and make sure those institutions follow their own policies equally. by automation to keep them compliant.
The company just raised about $ 33 million this week in what co-founder Roger Carson called the oversubscribed round.
“We had a lot of interest,” Carson said of the fundraising process. “There’s a lot of money in the space because everyone knows the banks will accept it if it solves the problems.”
Carson said while the current sanctions add another layer to helping keep companies compliant, they are also another illustration of the need — and what is becoming expected of regulators — that companies use the technology. to stay abreast of the changing world of regulation.
“There’s an increasing expectation that because there’s technology available, you should do better,” he said.
With so much money in the compliance space and large publicly traded companies like NICE and ServiceNow — as well as private ones including Quantexa and ComplyAdvantage — it’s fair to wonder if the merger could come to the sector.
“I think you’ll see consolidation in the next two to three years,” Carson said. “Banks don’t want five different tools they have to interpret. They want a platform.”
Illustration: Dom Guzman
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