It's called RegTech, and while the name might not ring any bells, the industry is booming. By 2028, businesses are expected to be shelling out an eye-watering $208 billion on technologies that help them stay on the right side of the law, as per a report by Juniper Research.

Recent digs into the matter by Zachary Kowaleski, an accounting prof at Texas McCombs, are suggesting companies drop a pretty penny on RegTech, but get a bang for their buck in ways they might not expect. Kowaleski's lens on broker-dealers revealed that RegTech investments are "not just a drain on the economy," according to Texas McCombs. Rather, these tech enhancements can streamline operations to the extent that customer relationships get a boost and employee monkey business gets curtailed.

After the broker-dealers pumped 24% more into their IT budget, they encountered a welcome 4% decline in customer complaints, employee disciplinary issues, and expensive incidents tipping the scales at or above $5K in damages. The takeaway is clear: when COVID-19 hit and turned dining rooms into offices, these tech-savvy firms managed to keep their clients' interests secure, even with desks scattered across town.

However, Kowaleski's research—carried out with Ben Charoenwong, Alan Kwan, and Andrew G. Sutherland from universities spanning Singapore to MIT—also found that the fiscal greens tend to sprout taller for the big players. Large-scale broker-dealers reaped the most RegTech rewards, while their munchkin-sized peers felt more heat, with profits taking a dive by about 24%. The study, based on SEC data from 3,317 broker-dealers, uncovered a stark 30% budget hike for the smaller firms, yet the apparent savings struggled to keep up, Texas McCombs explains.

This isn't just academic navel-gazing either; real-world cautionary tales like the FTX Trading collapse, where a regulation gap led to a multi-billion dollar fiasco, underscore the importance of robust regulatory environments. Cryptocurrencies might have dodged the SEC's gaze then, but the harsh lesson there gels with Kowaleski's conclusion: costly as RegTech might be, it's far from a frivolous waste. Instead, it's a critical bulwark in the financial battleground, keeping companies within the regulatory lines and clients out of harm's way.