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1 Are Legacy Banks Prepared to live without Logging off?
High switching costs and relationships in branch used to protect traditional lenders. But from 2020 to 2025, customer deposits of about USD 3 trillion shifted to the FinTechs and neobanks that offered one-tap money management (2025 FinTech Index). These digital competitors operate on rubber-band, cloud-native stacks, whereby code is released dozens of times a day, whereas most hundred-year-old organizations issue code on a quarterly basis on mainframes. The technology gap is no longer superficial; it stipulates the expectation levels of customers. Brick-and-mortar brand loyalty is gone when a ticket takes three phone calls to clear the same 30-second request on the app of one of their competitors. I experienced that myself last winter, attempting to freeze a mislaid card on the commuter train—one app was able to do it in time before reaching the next station, the other required a call-centre line-up. The point is obvious: it is not only user interfaces that need to be upgraded, but operational DNA as well in order legacy banks to be credible.
2 Compliance Hits its Limits: DeFi Adds another Shockwave
Decentralised finance has increased the urgency. The DeFi allows peer-to-peer lending, trade and payment through public block chains, circumventing the very intermediaries who would have historically imposed know-your-customer (KYC) and anti-money-laundering (AML) regulations. The number of transactions conducted on the basis of global DeFi has increased from USD 2.1 trn in 2023 to USD 3.8 trn in 2024, and is expected to exceed USD 5 trn in 2025 (ChainScope 2025). However, old AML solutions that were designed to screen SWIFT wires in batches cannot deconstruct thousands of wallet-to-wallet hops that are performed in a matter of seconds. And even worse, source of risk no longer travels slowly across borders but as fast as block confirmation, and compliance teams end up running behind smoke. Cognizant regimes have taken hold: in 2024 the UK-based Financial Conduct Authority levied crypto-related fines in record amounts of over GBP 120 m, and the excuse of not having seen anything is no more.
3 The Reason the Layer-Cake Approach Continued to Fail
Banks have attempted to tack on new modules to old cores such as fraud APIs in one area, wallet screening in another. Outcome is a highly fragile latticework of point solutions that are unable to context- or scale-elastically in rush hour. A Gartner survey as of 2024 revealed that 61 % of banks running on this patchwork continued to require manual case reviews of more than half of all alerts, increasing compliance-operations expenses by 37 % comparatively year-on-year. Next-Gen RegTech vendors in contrast design bottom up to:
- Autoscaling deployment of cloud-agnostic threat-detection engines
- On-chain and off-chain data are continuously ingested continuously.
- Models of self-learning that optimise risk scores when new typologies enter the picture
The platforms can also transform the burden of compliance into an analytics asset, treating compliance as real-time data science as opposed to rule-checking in the present; frontline staff can be alerted to unique cases, and low-risk events can be pushed straight-through.
4 The DeFi Machine: Smart Contracts and Liquidity with no Borders
Aave, Uniswap and MakerDAO are examples of services operating on open-source smart contracts performing automated execution without human supervision once particular conditions are fulfilled. Such independence will provide any time, any place liquidity as well as abuse avenues. In 2023-2024 alone, flash-loan attacks drained off an estimated USD 2.2 bn (Elliptic 2025), and discovery of the attacks frequently laundered the profits using token mixers in time-frames before tracking could begin. It is by definition immense: Uniswap V3 has traded as much in all of Q4 2024 as all the oldest 50 US community banks combined. To the compliance teams, every contract upgrade or cross-chain bridge is unknown risk. Next-Gen RegTech responds with on-chain behavioural analytics, clustering wallets by their origin (provenance) not just their identity and finding unrealistic transaction graphs within seconds of block finality.
5 Moving Regulatory Target: MiCA, SEC Enforcement and FATF Monitoring
Rulebooks have not been able to keep up. The Markets in Crypto-Assets Regulation (MiCA) of the EU became effective in December 2024, requiring the presence of white-paper disclosures and the audit of the reserves of stable-coins, but leaving most DeFi protocols in a grey area. The US Securities and Exchange Commission stepped up its enforcement action and registered 38 crypto cases in 2024, a 100 percent increase on the previous year, across the Atlantic. Meanwhile, the Financial Action Task Force maintains its push of the so-called travel rule, which urges virtual-asset service providers to provide information about both originator and beneficiary. The implication of this mosaic in the case of multinational banks is that banks have to align themselves with prescriptive EU legislations and principles-based US guidance at the same time keeping track of the changes in FATF on a quarterly basis. As the table below shows, the compliance burden was increasing at even the higher rate compared to DeFi volumes:
| 2020 | 2.24 | 1 | 0.26 |
|---|---|---|---|
| 2.1 | 21 | 33 | 2023 |
| 2024 3.8 | 38 | 41 | |
| 2025* | 5.0 (est.) | 45* | 48* |
6 Greylisting Shock: Why South Africa Became a Warning
Just weeks ago when South Africa was put on the FATF grey list in February 2023, correspondent banks went into overdrive, with absolutely no advance intelligence of this adverse listing issue, and thus escalated scrutiny causing cross-border payment processing delays to rise to an up to 40 % increase. The local lenders who operated the still rule-based screening engines of the early 2000s were caught by surprise. The episode highlighted that reputation damage has significant impact way before any official reparation is made. The same forces are likely to strike the jurisdictions with the biggest unregulated DeFi presence, such as stable-coin remittance channels in Nigeria or crypto uptake in volatile areas of Latin America. Enhancing to dynamic AI-aided controls is not even optional anymore; it is the precondition to stay tuned to the global banking grid.
7 Strategic Alliances Are Required Yet Not Adequate
Legacy institutions can partner with regulated crypto custodians or fiat-to-token gateways, which can issue new services without facing exposure to smart contracts. However, the outsourcing does not relieve the banks of regulations. The circle of compliance remains to be with the account provider. Next-Gen RegTech would seal the gap by integrating real-time monitoring APIs into pre-existing case-management dashboards so that thousands of blockchain messages per second would be transformed into simple risk messages. The models of deployment vary, with vendors shipping zero-trust gateways to be deployed on-premises; others funnel dis-identified telemetry to local data centres to meet data-residency regulations. Accenture (2025) cost modelling indicates that there is a 28 % opex savings when compared with in-house vertical integration when servicing banks of medium mettle in three or more jurisdictions.
8 What the Front-Runners Differently Do
Modular toolkits are now also provided by specialist RegTech providers:
- Forensics of blockchains places the locations of the wallet clusters, recognises the mixers, and assigns probabilistic risk levels.
- Smart-contract auditors apply symbolic execution with large-language-model reasoning to identify vulnerabilities prior to implementation.
- Cross-border screening hubs unify sanctions, PEP and adverse-media in more than 190 jurisdictions.
An example would be Singapore-based DBS, which added an on-chain AML engine in mid-2024 slashing false positives by 63 % and reducing the average case-resolution time by 75 per cent, to less than 12 minutes. In the meantime Spain-based BBVA has tested a RegTech-enabled wallet passport enabling wallet owners to carry KYC status with them across systems, with conversion at account opening rising by 17 % in the first trials, using the same RegTech-enabled wallet passport.
9 The Regulatory Overhead to Revenue Catalyst
When compliance is automated, banks can focus the human talent again on the creation of personalised offers and embedded-finance experiences. Think of three monetisation channels that are possible at scale:
- Risk-based onboarding in real time AI tiering enables quick opening of multicurrency wallet in minutes, boosting sign-up completion rates: low-risk customers can have an account in minutes, instead of having to wait days until KYC.
- Contextual credit and insurance – Contextual behavioural scoring can be used in micro-loans or pay-as-you-drive policies within partner apps.
- Banking-as-a-Service providers – By using the secure APIs, the retailers or the gaming companies can introduce co-branded financial services without bothering about seeking their own licences.
Such capabilities were table stakes to FinTechs; only when friction has been neutralised these become differentiators to traditional banks.
10DeFi Supercharger: Driving into the Bend, not Slowing Down
All the technological disruptions, starting with ATMs and ending with mobile wallets were first discovered as threats and then regarded as vital infrastructure. DeFi is on the rise taking after that curve. As those first institutions in the market to deploy Next-Gen RegTech early on, they will benefit in three ways that will become permanent assets: resiliency to the crime typology evolution, goodwill within the regulator as a result of proactive disclosure, and a data-rich basis of new revenue streams. How would that work in practice? Well, it would lead to fewer headline-seeking fines, quicker release of products, an agile culture that attracts the best engineering talent. The reluctance of banks to change will leave them behind tall capital cushions but leadership and profit pools will shift to those that view compliance as an intelligence operation, not a box to tick. Now the playbook on the decade ahead is being written, the pens are on the hands of the bold.