RegTech in Germany

Regtech, short for regulatory technology, is software that a regulated firm uses to meet a legal duty: screening, monitoring, reporting or checking a customer. The European Banking Authority found in 2021 that 75 percent of the 59 banks it surveyed already used regtech, and 80 percent of those used it for anti-money laundering and countering the financing of terrorism. In Germany the duty behind most of this software sits in section 25h(2) of the Kreditwesengesetz (KWG), which requires credit institutions to run data processing systems that detect business relationships and payments which are unusually complex or large, or which have no apparent economic or lawful purpose. A bank can build such a system itself or buy it; either way, the system counts as regtech.

There is no single German "regtech law". The tools serve duties that already exist elsewhere: KWG for banks, the Geldwäschegesetz (GwG) for customer due diligence, and sector rules for insurers and payment institutions. That is different from MiCA, which regulates a market directly.

The EBA survey found regtech used for fraud prevention (55 percent of banks that used regtech at all), prudential reporting (36 percent), creditworthiness assessment (25 percent) and ICT security (23 percent), next to the 80 percent for AML and CFT. A prudential reporting tool turns a bank's internal ledgers into the templates supervisors want, in the fixed digital format the suptech tools on the supervisor's side expect. A creditworthiness tool scores a loan applicant and, when it scores a natural person rather than a company, falls under the high-risk category of the EU AI Act as well as under KWG.

Banks named better monitoring and fewer human errors as the main benefit in the EBA survey, but the same report warned that a tool which is not properly implemented can create its own compliance, concentration and ICT risks, and that supervisors may lack the skills to audit the algorithm behind it. That last point is why BaFin reads the model documentation of a regtech tool as closely as the bank's own models.

A regtech company sells software to regulated firms rather than to consumers, and BaFin does not license the vendor directly; it supervises the bank that uses the tool and holds the bank responsible for the outcome. When a bank buys a regtech tool from a third party, the contract becomes an ICT service contract under the Digital Operational Resilience Act (DORA), and the bank must list it in its register of information. Dr. Jochen Biedermann, a member of the Finance Loop Advisory Board, sits on the board of Eastnets, a provider of compliance, payment protection and anti-fraud technology, one example of the kind of firm that sells into this market.

Video identification providers sit at the edge of regtech and KYC: IDnow in Munich, WebID in Berlin and Nect in Hamburg build the identity checks that German banks use when they open an account online, under the rules the KYC in Germany page explains in detail.

Finance Loop is the meeting place for compliance officers at banks and the regtech founders who build the tools they buy. It connects the finance, IT and AI communities in Frankfurt and holds events in Munich, Berlin and Hamburg as well.

Finance Loop supports When Banks Say 'No', a payments seminar at the NEXTOWER in Frankfurt for compliance, treasury and legal teams. At the Bybit EU Crypto Evening at TechQuartier, supported by Finance Loop, a senior policy director spoke on compliance under MiCAR. AI in compliance was a theme of KI Exchange in Hamburg. Related pages: KYC in Germany, sanctions compliance in Germany and DORA in Germany.

In banking, regtech means software for a task the law requires, not a task the bank chose on its own. Section 25h(2) KWG is the clearest example: it requires monitoring systems for unusual or suspicious payments, and a bank meets that duty with regtech whether it builds or buys the tool.

Examples include Eastnets, a compliance and anti-fraud technology provider whose board includes a Finance Loop Advisory Board member, and the video identification providers IDnow, WebID and Nect, which serve the KYC side of compliance for German banks and fintechs. Other regtech companies sell prudential reporting tools. These turn a bank's internal ledgers into the templates BaFin and the Bundesbank require, a segment the EBA counted separately in its 2021 survey.

Regtech and compliance topics mostly appear inside broader finance, payments and AI events rather than at one dedicated regtech conference. Finance Loop lists current dates in the events overview and in the calendar on this page.