Voice of the Industry

UK's and Europe's regtech unicorns and hot identity verification providers to watch

Wednesday 10 August 2022 09:30 CET | Editor: Raluca Ochiana | Voice of the industry

The Paypers explores regulatory trends in Europe and the UK and the potential regtech unicorns and IDV kings that enable fintechs/banks to build effective compliance programmes and manage fraud.

‘Every company with a payments component faces the same problem: the momentum-killing wait time between when the customer transfers money to your platform and when they can use that money on your service to transact’ Angela Strange, General Partner at Andreessen Horowitz, a private American venture capital firm.

Consumers expect transactions to happen anytime, anywhere, real-time, without thinking about all the processes behind them. But for a financial institution, this ‘simple’ task translates into many aspects. Let’s name but a few: transaction authorisation, settlement, security, compliance, user experience, etc. which leads us to questions like: how can we trust the other person we are transacting with? How do you spot payment anomalies? Is the transaction compliant with AML regulations? What solution or with what provider should I partner to solve fraud and security issues associated with my transactions, while staying compliant? 

Over the next articles, we will be presenting companies that deal with detecting and preventing fraud, onboarding customers, and monitoring transactions. Plus, we will be revealing what is influencing the speed of growth of the regtech and identity verification (IDV) industry and lastly the promising players to watch for across Europe, the UK, North America, and Asia. In this article, we are going to explore regulatory trends in Europe and the UK and the potential regtech unicorns and IDV kings that enable high-growth firms/fintechs/banks to build effective compliance programmes and manage fraud in these regions. 

The UK

With companies in the UK completing more than half of all investment and M&As transactions in regtech in the region to date, the European regtech industry has been heavily dominated by the UK. The Kalifa Review of UK Fintech, published in February 2021, spurred this activity because it focused on retaining fintech businesses in the UK beyond the startup stage, aiming to create more homegrown global champions. The Review recommended several changes to the UK Listing Rules amid concerns over the UK’s declining status as a venue of choice for global IPOs, following Brexit. These included removing restrictions on certain dual-class share structures and reducing the proportion of shares required to be in public hands. Both measures were intended to favour founder-led companies, by allowing founders to retain a greater degree of control after a floatation. The recommendations were echoed in Lord Hill’s UK Listings Review, which was published around the same time. Another British initiative that might stimulate regtech adoption is FCA’s letters to all UK financial institutions, warning them about the obligation to register, track, and trace Ultimate Beneficial Owners (UBOs). The purpose of this initiative is to put an end to Russian criminals using the British financial system to their advantage. 


Regtech companies across the channel have also increasingly attracted attention from investors. In 2021 the European regtech ecosystem outside the UK recorded some USD 200 mln+ deals, including Collibra, Belgian data security and compliance platform, announcing it raised USD 250 mln in November 2021. Overall, companies on the mainland raised USD 910.9 mln, registering a growth of 31.2% compared to 2020. The growth in the M&As and investments activity in Europe has been influenced by the European legislative landscape, not only by local initiatives, payments digitalisation, increased use of remote identification processes, etc.

Regional regulatory trends – AML, Crypto, AI, BNPL, ESG

Successive anti-money-laundering directives (AMLDs) are the backbone of the EU regulatory framework around AML/CFT. On 20 July 2021, the European Commission presented a package of legislative proposals that aim to prevent the use of the financial system for money laundering or terrorist financing. This can be achieved by an EU ‘single rulebook’ on AML/CFT and an EU regulatory framework on AML/CFT that keeps in step with technological innovations and related new forms of crime. 

Therefore, the AML/CFT landscape in the EU will continue to progress. The most significant change expected in 2022 is the potential adoption of four legislative proposals that would strengthen AML/CFT regulations within the region through specific actions to be taken:

  • the creation of a new anti-money laundering authority (AMLA) that will oversee AML/CFT efforts across the entire region;
  • the establishment of a new Sixth Anti-Money Laundering Directive (6AMLD) on mechanisms that EU member states must implement or clarify to prevent money laundering and terrorist financing;
  • the development of an EU-wide master rulebook, which will not need to be transposed into national law by each member state. Instead, it will be directly imposed across the bloc; 
  • the update of regulations regarding funds transfers to bring VASPs (Virtual Asset Service Providers) into the scope and incorporate travel rule changes.

The EU countries must issue their regulatory requirements for crypto assets following some overarching guidelines. Thus, three regulatory initiatives compelled European countries in the last few years to implement regulations at the local level:

  • the guidance for virtual asset service providers (VASPs) published by the intergovernmental Financial Action Task Force (FATF) in 2019;
  • AMLD5, an anti-money laundering directive issued by the European Union that required VASPs to register with their local government. AMLD5 came into effect in 2020, and as with all EU directives, it laid out a goal that EU countries had to achieve but left it up to individual countries to create and implement their laws.
  • the European Commission's Regulation of Markets in Crypto-assets (MiCA) is a regulatory framework developed in 2018 to help regulate currently out-of-scope crypto-assets and their service providers in the EU as well as to provide a single licensing regime across all member states by 2024. The crypto law would eventually apply to the 27 EU states. As such, once a crypto company is licensed in an EU member state, under MiCA it would become ‘passportable’, meaning it could be set up in another EU nation without having to obtain approval or additional licences from the local government.

The European Commission’s adoption of MiCA, alongside a plan to widen the scope of VASPs and update the travel rule, is an attempt to harmonise regulation and promote market integrity while supporting innovation. This might intensify workaround regtechs and blockchain analytics companies offering services to crypto providers. Compliance, however, won’t be cheap — one-off costs for crypto firms could go as high as EUR 16.5 mln, according to an impact assessment by EU officials. All in all, costs in this ballpark ‘could prove insurmountable’ for startups, warns Patrick Hansen, head of blockchain at Bitkom, a German digital industry association.

As financial institutions have started to adopt artificial intelligence (AI) to cope with financial services regulations, the European Banking Authority (EBA) said that ‘new rules might be needed to account for the ‘further adoption’ of AI and other forms of machine learning (ML)’. For the last two years, the European Banking Authority (EBA) has launched several consultation papers on the need to educate and inform regulators as well as supervisors on the usefulness and transparency of using Big Data and Advanced Analytics in financial services. As such, it is crucial to ensure that AI solutions respect and integrate ‘elements of trust’ such as ethics, explainability and interpretability, fairness and avoidance of bias, traceability and auditability, data protection, data quality, security, and consumer protection. Gradually EBA starts to move from consultation to creating a potential framework to regulate these techs, a move that has the potential to intensify the activity in the regtech M&A space.

Since the COVID-19 pandemic started, the BNPL payment method has been very successful due to the absence of regulation around offering and using this model. Currently, there are no hard credit checks for point-of-sale financing in Western Europe. The booming of this market and the increased demand for this payment method from consumers, however, are raising concerns over the lack of information for consumers around the features of BNPL, the lack of consumer creditworthiness assessment, and the potential creation of over-indebtedness, according to the Financial Conduct Authority (FCA) in the UK. As a result, the European Union is tightening its rules on consumer credit to provide more protection for consumers, and a Europe-wide regulation is expected to come into effect in 2022 or 2023.

Since the banking sector needs to focus also on objectives related to a more sustainable economy and mitigating risks stemming from climate change and broader environmental, social, and governance (ESG) factors, this is one of the EBA’s multiannual priorities. Therefore, the ESG disclosure obligations under Level 1 of the Sustainable Finance Disclosure Regulation (SFDR)6 that have applied since 10 March 2021 might influence work in this sphere.

Overall, a lot is happening in the regulatory space, not to mention the fraud challenges we covered in our previous instalment (phishing, social engineering, identity theft, ransomware, ATO, APP fraud, and other types of fraud have soared during the COVID-19 crisis), but there is hope at the end of the tunnel. Technology providers can assist businesses to effectively comply with regulations by monitoring real-time transactions that take place online, identifying issues or irregularities in the digital payment sphere, automating manual work, generating reports, etc. As a result, we will see more investment pouring into these types of solution providers. 

The Regtechs

ComplyAdvantage - Founded in 2014 with a mission ‘to neutralise the risk of money laundering, terrorist financing, corruption, and other financial crime’, the London-based regtech announced a new investment led by Goldman Sachs in May 2021, as previously covered in our regtech M&A. ‘Fuelled by an expanded portfolio of global crypto, fintech, and banking customers including Gemini, HTB and TransferMate and key strategic partnerships with blockchain data and BaaS providers including Elliptic and Raisin Bank’, the regtech says 2021 brought record growth of 80% in annual recurring revenue. Moreover, in 2021, the company’s platform facilitated more than one billion searches across 150 million entities that are monitored daily. ComplyAdvantage anticipates its growth momentum to continue in 2022 and will be increasing the team to nearly 500 people by the year-end. Now, it has four main hubs in New York, London, Singapore, and Cluj-Napoca (Romania).

Another regtech player coming from the UK market, PassFort, announced in September 2021 a Series A funding of USD 16.2 million. The round follows customer acquisitions for PassFort, including Curve and WorldRemit. Two months later, PassFort partnered with financial market data firm Refinitiv to establish a digital Know Your Customer (KYC) solution for challenger institutions. But the biggest announcement yet came at the beginning of 2022 when PassFort partnered with identity verification company Trulioo to digitalise KYC and KYB processes for businesses around the world.

In July 2021, Quantexa added an extra USD 153 mln from Warburg Pincus and later, BNY Mellon also completed a strategic investment in the regtech. Other notable achievements for the company include the RegTech Award for Data Analytics & Visualisation at Regulation Asia Awards for Excellence 2021.

In May 2021, Astorg and Bridgepoint expressed their decision to sign an agreement to acquire Fenergo, an Irish provider of client onboarding lifecycle management software for corporate, investment, and private banks. And even if there weren’t too many announcements about Fenergo since the COVID-19 crisis began, the Irish fintech unicorn has recorded 40 new client bookings. Speaking to The Irish Times, co-founder and chief executive Marc Murphy said he expected the company to record ‘modest profitability’ in the coming years, with the primary focus on reinvesting revenue to further grow the business. ‘We’ve signed up for a four-year sprint in which the focus is transforming the business into a pure software-as-a-service [Saas] company’, he said. 

Regulatory and compliance software for regulated industries Ideagen got GBP 100 million. Following this funding, in November 2021, the company stroke GBP 57.7 million deal to buy Sydney-based CompliSpace to extend its capabilities to Australia. The acquisition is Ideagen’s 24th since its admission to the Alternative Investment Market (AIM) on the London Stock Exchange, continuing what it said had been a successful strategy of growth via strategic acquisitions.

Among regtech British players, worth mentioning is also intelligent compliance technology company Napier which strengthened its foothold in APAC in May 2021, and had numerous partnerships across the globe with the likes of Australia Post, Australia-based financial services company ClearView, cross-border payment specialist ONEPIP, and Lithuanian Electronic Money Institution (EMI) Satchel. Besides these partnerships, the company is very active in protecting the crypto space, as it teamed up with Simplex, a fiat infrastructure for the crypto industry.

With larger investors warming to crypto, DeFi, NFTs, and digital assets in general, and growing regulatory scrutiny on these businesses, blockchain analysis firms are in high demand. In October 2021, cryptocurrency researcher Elliptic raised USD 60 million from SoftBank and Wells Fargo's venture capital arm. London-based Elliptic was established in 2013 and it tracks the movement of cryptocurrencies on blockchain to help financial crime compliance. Elliptic's clients include traditional financial firms, fintech and crypto companies, as well as government agencies. Two-thirds of crypto volume worldwide passes through exchanges that use the firm's software, it said. The company has four locations so far: London, New York, Singapore, and Tokyo. Last summer, the company completed a pilot project with Santander, Spain's largest bank, to detect suspicious activity linked to digital assets.

Germany- based onboarding and monitoring solution provider Web Shield joined ZignSec, a Sweden-based regtech company known for its global identity verification platform, to create a one-stop-shop KYC, due diligence, and monitoring solution. Another German player, deploying AI to catch up to 90% of false positives is Hawk:AI that got USD 10 mln to help financial institutions combat money laundering. It works with financial institutions and partners such as North American Bancard, Ratepay, and Modularbank. The raised funds supported the AI company to strengthen its European and US footprint, while also expanding to Singapore and the United Arab Emirates. Additionally, Hawk:AI also expects to double its employee headcount by the end of 2022.

One cannot talk about digital onboarding and KYC and not mention identity verification providers. Onfido, iProov, Veriff, Callsign, IDNow, and Signicat, are just a few of the Europe-based players hot to watch out for.

Battling with other leading global IDV platforms, Onfido has the potential to make headlines in 2022 as the competitive landscape expands to adjacent market segments, including fraud/risk scoring and authentication. While they were relatively quiet on the M&A front in 2021, according to Liminal, the company might receive some funding in 2022, as buyers continue to demand full-stack solutions.

At the beginning of 2022, online biometric face authentication company iProov announced a USD 70 million growth investment from Sumeru Equity Partners. The company has seen a lot of business traction so far in its home market of the UK, and now it plans to use capital specifically to continue building out its presence in the US and other international markets where it’s already started to get a foothold. iProov's customer base currently includes the US Department of Homeland Security, the UK’s Home Office, and National Health Services (NHS), the Australian Taxation Office, GovTech Singapore, and banks Rabobank and ING. According to TechCrunch, iProov said 2021 was a bumper year for the company: it tripled its revenues over the year before (although it’s not disclosing how much that works out to in actual terms).

By pioneering digital trust through proprietary technology that uniquely mimics the way humans identify each other in the real world, Callsign is another company that has the potential to make the M&As headlines in 2022. In 2021, Visa chose UK-based digital trust provider Callsign to be its preferred behavioural biometric digital and device intelligence identity provider. Furthermore, the company has been invited to join WEF global innovators programme in which they are working with the cohort on Digital Identity. Recently, the company opened an office in Singapore and grew its presence in the UAE with that office.  

One of the most promising pieces of news on IDV M&As, however, came from Estonia-based identity verification company Veriff since 2022 started. The company, valued now at USD 1.5 billion, raised USD 100 million in Series C to expand its global customer base, develop new products, and invest in R&D.

Scandinavian identity provider Signicat, which expanded its agreement with If’s (an insurance company) to grow its customer operations in the Baltic states, has also plenty of potential to sign more deals in the customer authentication space. In 2021, the company acquired Norwegian Encap Security, the Spanish digital identity player, Electronic Identification, and Lithuanian electronic signing provider Dokobit, to strengthen its position in the European regtech market. In March 2022, for the second year in a row Signicat has been named on The Financial Times' FT1000 list, which recognises Europe's fastest-growing companies across several industries. And last, but not least, Germany-based Platform-as-a-Service provider for identity verification IDnow partnered with UK-based Sphonic to develop new fraud platforms and tools that meet the varying obligations that exist right across Europe. 


Going through so many funding rounds and acquisitions we can rightfully conclude that there is a lot of activity and demand happening in the financial crime and fraud prevention space. Many players are looking to present their solutions, expand globally, solidify their partnerships, and overall aim to make the financial world a safer, more regulated, and responsible ecosystem. In 2022 we expect more partnerships between regtechs and financial institutions, to enable FIs to cope with sanctions, monitor crypto transactions, detect UBOs, and most importantly spot fraudulent activity. When it comes to IPO-ing, many big names will be on a standby position, as many seek to further consolidate their products, teams, services, adjusting them to the new realities: businesses adopting hybrid working environments, banks shutting down branches, financial institutions needing to pay more attention to their transactions (do lots of sanctions screening and detecting UBOs). Over the next articles, we will be focusing on what is happening in America and Asia.


This editorial was first published in our Financial Crime and Fraud Report 2022, which showcases the innovation and development of the best practices and instruments used by financial institutions in their fraud prevention activities, to improve the digital onboarding process of their customers while fighting against financial crime. 


About Mirela Ciobanu

Mirela Ciobanu is a Senior Editor at The Paypers and has been actively involved in drafting industry reports, carrying out interviews, and writing about innovation in payments and fintech. She is passionate about finding the latest news on AI, crypto, blockchain, DeFi and she is an active advocate of the need to keep our online data/presence protected. Mirela has a bachelor’s degree in English language and holds a master’s degree in Marketing. She can be reached at mirelac@thepaypers.com or via LinkedIn.

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Keywords: identity verification, regtech, digital identity, financial crime, fraud prevention, cryptocurrency, KYC, artificial intelligence
Categories: Fraud & Financial Crime
Countries: World
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Fraud & Financial Crime

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