RegTech Adoption and Anti-Money Laundering System Effectiveness: Evidence from the Banking Sector of Pakistan.

Abstract

The increasing complexity of financial regulations and the growing threat of financial crimes have encouraged financial institutions to adopt Regulatory Technology (RegTech) to enhance compliance efficiency and strengthen anti-money laundering (AML) frameworks. However, despite increasing technological investment, the practical impact of RegTech on Anti-Money Laundering System Effectiveness (AMLSE) remains uncertain in many emerging economies, including Pakistan. This study investigates the role of RegTech in improving AMLSE within the Pakistani banking sector and explores the factors influencing its implementation.
A qualitative exploratory research design was employed, using ten semi-structured interviews with AML and compliance professionals from commercial banks, Islamic banks, microfinance institutions, development finance organizations, and digital banks. The collected data were analyzed using thematic analysis to identify recurring patterns related to RegTech adoption, system integration, organizational readiness, and regulatory constraints.
The findings reveal that while RegTech tools such as transaction monitoring systems, electronic Know Your Customer (eKYC), and automated regulatory reporting are widely implemented, their usage remains largely compliance-driven rather than strategically focused on proactive risk detection. Banks continue to rely heavily on rule-based monitoring systems that produce high false-positive rates and require substantial human oversight. Additionally, legacy infrastructure, limited staff expertise, and regulatory uncertainty constrain the adoption of advanced technologies such as artificial intelligence and predictive analytics.
The study concludes that effective AML outcomes depend not only on the availability of RegTech tools but also on their depth of adoption, system integration, regulatory clarity, and organizational capability development.