Spreading the Joy of RegTech

[00:00:04.090] – Marshall Smith

And welcome to the ‘Ventures and WealthTech’ podcast. I’m your host, Marshall Smith. Joining with me today for today’s episode is Mary Kopczynski. She is the founder and CEO of Regalytics. And I have to say, one of the things that I love most about Mary and Regalytics and what they do there is their fun weekly recaps of that week’s regulatory news. And I have to say, one of my favorites is when you were at Disney World with your son and included him with you just living life, being a founder, going on vacation, doing business, doing life, and talking about crypto regulations and money lenders, and who knows what pet regulations. You always make the content really fun and interesting. And so, if you don’t know anything about Mary at this point, you can check her out on LinkedIn and see her weekly updates. But enough about that. I want to introduce you to Mary. So welcome to the show.

[00:01:12.120] – Mary Kopczynski

Thanks for having me, Marshall. I’m excited to be here. And yes, regulation is fun, no matter what people say. Even though I spend most of my time with people in dark business suits, that is one of the pieces that I like to bring to the table, is joy.

[00:01:30.590] – Marshall Smith

So, get us inside the mind of these people who work in regulations. You said that it’s fun. Do they think it’s fun? Or are you the only one who thinks it’s fun and you’re trying to bring the fun to the party?

[00:01:43.910] – Mary Kopczynski

That’s a really good question, because my former experience is that I did regulatory crisis management on Wall Street, the biggest banks dealing with the fall out of Dodd-Frank, and it was not a happy place. I mean, believe me, there were people that were stressed, worried about their jobs, being asked to do more with less. And on top of it, the regulations would come from everywhere. They wouldn’t have known about them. They would be running late on it, and everything was just a burning hot emergency. And so one of the things that I find joyful about it is that nothing surprises me anymore. Back in the day, before even I had Regalytics, I would be surprised by regulatory news or something I heard from CNN or a random law firm sent a description of a new reg hadn’t known about, and it felt like it was coming from everywhere. And so, I think part of the reason I’m so joyful is because I’ve solved this problem that I used to have as a regulatory expert, and now you can see things coming from miles away, and it’s just such a different experience around regulation.

[00:02:59.390] – Marshall Smith

That’s awesome. So, you’re wanting to spread the joy that it could be to be in regulatory compliance now that you’ve launched your venture. So, tell us about Regalytics and what you’re doing to solve this issue that you experienced yourself.

[00:03:14.330] – Mary Kopczynski

So, this all started – I guess the backstory is that while I was doing regulatory compliance. I was talking about RegTech as early as 2013, and people thought I had dropped off the moon. They thought, lawyers and tech, it’s never going to happen. And I actually started to believe them because I had like a graveyard of failed RegTech products. And I think, upon reflection about myself, I have a law degree and a PhD, and I handle really complicated problems. And so, when a customer would come to me with something they needed, it was just really simple. I had a tendency to say, no, you don’t need that. You really need this really complicated thing. And so, the way Regalytics came about was just so simple. It was a really big French bank that came to us and said, gosh, we had to buy this really expensive regulatory alerts tool, and we spent all of this money buying it. And on top of that, we have six junior lawyers that read it every day and put it in Excel. Can you just put it in Excel? And it was so counter to everything that I had wanted as a RegTech founder because I felt that the industry does way too much in Excel and that they need to get out of Excel and have things that were more trackable.

But finally, I was like, you just wanted an Excel? Sure, I’ll get it for you in Excel. And so, the first iteration of our product was literally an email with an Excel spreadsheet that had every rule that came out of the United States having to do with the financial services industry. And it went from there, and I just kept listening. And then we had customers that said, actually, I really need a solution for all of the labor and employment rules. And yes, Marshall, we did get asked about pet insurance. They needed a solution because some of these things are regulated down at the 50-state level, and there’s just no easy way to stay on top of the changes. And so, our product essentially is we gather data from over 100,000 regulators a day. We get the data of what wasn’t there yesterday, and then we put it through an editing and cleansing process. But the most important part is that we have this user interface that people can go in and just say, show me every crypto alert that came out in the last six weeks, or show me every data privacy rule, or show me anything that has to do with pet insurance.

And it’s so nice that I can spend, I don’t know, probably an hour a week. And I’m covering, in my view, probably 10 or 15 topics, changes every so often depending upon what I see going on in the news cycle, and I can be up to date on all of them in about an hour’s time. And I think to myself, if I were an expert just in one area, like maybe if I was just focused on cannabis regs, I would be a super duper expert because there’s only like 100 of those a week. Right. So that challenge of gathering is the part that we’ve really solved, and it’s transformative once you have access to it. So, I want to spread the joy. I want people to know how easy this can be. And then you can even have time to laugh at the weird ones, right?

[00:06:44.210] – Marshall Smith

Yeah. This is really fascinating, and this is one of the things that interested First Rate Ventures in your business was really exposing this problem that banks, financial institutions, and other corporates literally don’t know what regulations apply to them. And in many ways, they’re just waiting to get hit with a fine or an issue, and then they’ll solve it from there. As I think about it, in the financial world, there’s something called the ‘Global Investment Performance Standards’ that basically is the standard setting for performance return communication, advertising, things like that. They come out with new regs, so to speak, for that, like every couple of years, and they send them out months in advance, and everybody in the industry looked at them and comments on them. It goes through this lengthy process. And so to me, as I think about regulations just kind of within the WealthTech world, I think about that and just how predictable and how advanced they come out. Everyone has plenty of knowledge of what the new rules will be, and they have plenty of time to get in compliance. And usually, the compliance doesn’t start for a year or two after the rule goes into place.

[00:07:56.110] – Marshall Smith

So what you’re saying is that in many of these other spaces, not only do people not have time or advanced knowledge, they literally don’t know what the rules that may apply to them are. Tell me about, I guess, confirm that that’s true, and then tell me, how do people live? No wonder they’re angry people working, anxious people.

[00:08:24.450] – Mary Kopczynski

One of the things I say all the time is regulators need to make money, too. And one of the things I’ve been able to watch is the sweeps certain regulators will make, right? So Washington State, for example, clued in that you don’t need to have a crypto license to operate in New Jersey. And so, you know what Washington State did? They did an investigation of every single crypto company registered in New Jersey. And if they had a single customer in Washington State, Washington would sue them and say, you are not following our money transmission laws. You had to register with us to be a money transmitter. Similarly, like data privacy, Alaska has a data privacy rule. Everybody always talks about California CCPA, but they don’t realize that if you have an Alaskan in your database, you’re bound by Alaskan law to protect that Alaskan person or Alaska can come after you. It’s just incredible to me how people operate blind on the fines because that’s another thing is maybe you just worry you might get fined for something, but, you know, it’s a lot more practical, actually look at who’s getting fined and what they’re getting fined for.

And if you just monitor fines, you can say, oh, wow, this particular regulator really is worried about this one problem. I guess I should double check that I’ve got that under control, right, because it’s costing money. Like, an interesting example is the New York Department of Financial Services has a cyber breach notification rule that if your app or your records or someone has gotten into your system, you have to notify the New York Department of Financial Services that this has happened or they can fine you for a late notice. Well, they’re not the only one. Rhode Island has had that on his books for like 16 years. So, it’s this revelation that it’s like death by a thousand paper cuts and you don’t even know where they are. Whereas if you just look and you’re like, oh, there’s a trend of cyber breach notification fines. I guess we should have a strategy for notifying all the regulators if we ever have a cyber breach and then boom, you like, avoid so many problems that you could have later. But it’s the difference of being proactive about regulation as opposed to, like, reactive.

[00:11:03.150] – Marshall Smith

Yeah, well, as I think about innovation, I think one of the things that stifles innovation is not knowing what the rules are. And so, I think about regulation, I think in its purest form should be via rulemaking. So, firms know what the regulatory environment is because there’s a rule-making process comment, legislatures passing these things in an orderly way. But instead, a lot of times what you’re describing and a couple of those stories is regulation by enforcement. So nobody really knows how to stay in line until they get slapped on the wrist. And once somebody gets slapped on the wrist, everybody looks at that and then says, okay, now I know how to be in alignment. Do you see this regulatory environment and some of the challenges with remaining in compliance stifling innovation from a technology perspective?

[00:11:56.430] – Mary Kopczynski

I think it does in certain ways, especially the enforcement side of it because it can freak people out, right, that they’re suddenly like, oh, there was a big crypto fine, I’m not touching crypto at all. But the reality is that the more regulation that comes out on a topic and the more enforcement that comes out on a topic, it actually is carving out the path of what’s allowed and what’s not allowed. So, regulation actually makes people feel more comfortable in certain ways. Right. And so, it’s interesting to be watching the evolution of some of these topics. Like cannabis banking and cryptocurrency. For sure. But also just even some of the new rules coming out right now for asset managers that they have a lot more disclosures they have to do and stacks and all these things that they all kind of start out as like. This is a good idea. There’s no rules against it. Let’s do it. And the first, let’s say, 50 actors that go out and do this thing that’s unregulated is great. The regulators start asking questions, the regulators start getting opinions on it, and the regulators start issuing rules and then they start enforcing rules and sometimes they go back and they enforce rules that maybe weren’t there in the beginning.

And so, I feel like if you’re an investor in some of these trending topics like sports betting or so many different things – crowdfunding even – that it’s important to watch this evolution because with one stroke of an alert. You will know that an entire line of companies are going to be out. Like in a matter of years. Maybe months even. Because the regulators have basically said. No. It’s not good anymore. It’s not allowed. So, there’s a lot of opportunity.

[00:14:10.030] – Marshall Smith

Yeah, well, tell me a bit about how you formed a team. So, are you a bunch of reformed, dark suit regulatory people who now walk around in your bare feet and start-up planned and wake up at 10:00 in the morning and roll out of bed and drink some expensive pour-over?

Tell me, what is it about your team and your experience that helps you be successful in this space?

[00:14:47.710] – Speaker 2

I think for me personally, I actually came from the nonprofit world. So, when I got out of school I worked for an organization called World Vision, which is a large Christian humanitarian organization. And just generally being a nonprofit where you are focused on pinching pennies, making do with the scraps, but more importantly, there’s like a level of accountability there where if someone gives you $500 for pencils to children in Bolivia, you’re practically expected to have a picture of you giving the pencils to the children. And then to step into Wall Street and discover that a lot of this stuff is run on excel. Rounding errors are like 25 million a pop. Things are still very much on the floor in somebody’s office in paper, and it’s not even digitized. It was actually, for me at the beginning, very upsetting. I was really frustrated that Wall Street was so wasteful with resources that had been so hard for me to get access to as a nonprofit. And so I started learning about the impact investing space and this is again ten years ago before ESG was the biggest buzzword of all time.

But I kept saying, oh my goodness, they’re using financial engineering, including, for example, charitable trust, to write down some of their failed investments and they get a tax write off this to their benefit. Like they’re using the tools of the nonprofits. Why aren’t we using their tools? Right? So, we started talking about a social impact bond on steroids where it had different tranches, much like a CDO and a credit default swap kind of thing in it, where it’s just essentially sharing the risk around an investment that would do something like shrink homelessness or solve a social ill that we have in this world. And I got very, very passionate, I mean, I feel am very passionate about it, but if we could find a way to make the financial rules and systems easier to follow, it would create a better flow to enable better social change in the world. And I’m proud of what we did in the ten years that I did regulatory crisis management because a lot of those safety levers were not there before. And so, when COVID hit, everybody knew where to pull and how to move things so that the entire economy didn’t crash on us on top of the pandemic.

[00:17:45.820] – Mary Kopczynski

And so, I was really proud of the work that we did. But there was something in me that just really wanted to focus on innovation, always focus on innovation, and that there has to be a better way of doing things. And so, I guess I’ve always been an entrepreneur. I’ve always been able to see this future that other people didn’t see. And the team, the rest of us here are four founders. They were with me in some of these really complex banks, equally frustrated by the data, but understanding how critical data was. And we decided that maybe what we needed to do is we needed to make the data for them. If they couldn’t make it themselves, why don’t we just make the data that we need? And so that’s where this grew, is that we are trying to build the world’s most comprehensive, most customizable, but most coherent regulatory alerts tool in the world. Because then everyone can rely on this clean set of data and there’s no reason that each individual institution should have to go and go to each regulator’s website and set up all these scrapers and deal with it. Like, why can’t we just be this utility for everyone that provides this clean, reliable data?

So, we’re passionate about producing this because it was the thing that we needed when we were operating inside these institutions. But we’re also very passionate about it because we do see this opportunity and this transformation of the financial system as we know it to become digitized. The fintech space is growing, the RegTech space is growing. And we want to be a part of that future because we think it’s going to make the world a better place.

[00:19:45.610] – Marshall Smith

Yeah, that’s cool. I love hearing founders’ stories that include I was a user or I wanted to be a user of a product and I was so challenged by it. My industry would be so much better, the people would be so much happier in the space if they only had this, and then took that creative energy, cultivated it into a product, and scaled it and that’s what you guys are doing. So, kind of as we head towards wrapping up our chat today, one of the things that First Rate Ventures is really passionate about is deploying our own values of First Rate into the venture capital space. And so, we’ve been using a term and asking questions of others of what it would look like for a venture capital fund to serve entrepreneurs. To serve the users of those early startup companies or the coworkers. The actual people working in these businesses and becoming better aligned with them such that the industry benefits the employees of these companies. Benefit the customers of these employees. We’re using the term redemptive capital as one way to think about how we could deploy capital into portfolio companies like yours to see clients, coworkers, and community all benefit from that.

[00:21:03.520] – Marshall Smith

So, you’re in this space, you’re raising money from venture firms, you’re running a start-up and you’re serving customers and you’ve got employees with you. If you could wave a magic wand on something in that area to benefit either your company, your users, your coworkers in a way that would be a change in how the traditional venture capital funding sausage grinder works, what would you do and why?

[00:21:32.470] – Mary Kopczynski

Well, I have to say I’ve experienced it because one of the joys of working with First Rate Ventures was really two things. Number one, your values, and the understanding of the founders have a passion, we have a dream, we have a place we’re going. And the respect that you have for where we want to go has been unlike any other venture partner that we’ve worked with, for sure. So that alone is the support, the thinking through some of our processes and our pricing and our strategies. But the other piece of the equation is the artificial intelligent engine with ArtIE that has been really transformative for us in exactly that way. Because when we came to you at first, I think we had maybe, I don’t know, probably 70,000 alerts in our user interface that you can search and sort. And we started working with the ArtIE team and identifying our processes, our procedures and ways we could do it faster. And I’m proud to say that last week we just knocked over 250,000 alerts. Right. And the scale and speed of that in such a short time has been completely enabled by this relationship and just really understanding a better way that even we can do things to be innovative.

So, it’s been a wonderful experience in both values and in delivery.

[00:23:08.170] – Marshall Smith

Yeah, that’s cool. Well, we’ve really enjoyed working with your team. I think, one of your values, which is ‘people first and profits will come’, I believe is the way that it goes. Did I get that right?

[00:23:21.100] – Mary Kopczynski

It’s ‘people, product, profits’. We work for people and the way we serve people is by building an amazing product that they can use, and we believe profits will follow.

[00:23:36.620] – Marshall Smith

Alliteration threes and alliteration I do love.

[00:23:40.690] – Mary Kopczynski

The ‘People Products Project’, and then the three C’s, which is ‘Comprehensive, Coherent, and Customizable’. The three C’s of our product.

[00:23:48.190] – Marshall Smith

That’s awesome. I love it. Well, thanks. Thanks for joining me on the episode today, Mary. We’ll talk soon.

[00:23:53.870] – Mary Kopczynski

Thanks, Marshall.

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