Building a compliance platform that delivers lasting accuracy is a major challenge. Most platforms ultimately fail not because they are incorrect at launch, but due to an inability to adapt to constantly evolving regulatory demands or new monitoring capabilities.
Market demands for effective RegTech solutions drive the need for fully functional products that deliver real impact, but in an industry that’s inherently unpredictable, more often than not, a familiar pattern repeats itself. The technology that was meant to reduce compliance risk becomes a source of it.
How can tech providers in the financial services space deliver products with lasting reliability?
Rapid prototyping allows teams to mitigate risk by testing assumptions early and developing products that deliver long-term reliability. Through a process of effective communication between vendor and client, an iterative approach to product engineering, and the right mindset, tech providers can satisfy customer demands with flexible compliance solutions that excel in demanding markets.
The Regulation Paradox: Consistency, Flexibility, and Usability
Every compliance product must satisfy three competing demands:
- Consistency: Clear delivery timelines, transparency regarding deadlines, and remaining on budget throughout the product development process.
- Flexibility: The industry is fluid. Regulations constantly change, and with them do product requirements. Understanding what auditors will focus on today isn’t the same as what they will be a few years from now.
- Usability: The most sophisticated compliance platform in the world is useless if teams can’t use it. Products should reduce workload, not add to it with unnecessary complexity.
Vendors often sacrifice one or more of these priorities in favor of others. The result is compliance software that fails to adapt to new regulatory changes or absorb the latest monitoring requirements. Too often, this leads to cutting corners in the development process, a finished product being a rigid system incapable of meeting evolving demands, and an unhappy customer.
Overcoming these challenges doesn’t just require a different approach to product development, but a completely different mindset.
Building Architecture That Anticipates Change In KYC/AML platforms, change is the only constant variable.
Risk models evolve, thresholds change, new typologies emerge, and regulatory interpretations get updated. If your architecture assumes stability, you’re building technical debt from day one.
This doesn’t mean over-engineering for hypotheticals. It means designing systems where change is a feature, not a crisis. Where updating a risk parameter doesn’t require a release cycle, and where methodology changes are seamlessly integrated into existing systems.
Prototyping allows teams to assess whether risk parameters can be changed without redeployment, or if regulatory changes to be taken into account without a significant structural rework. An incremental approach to compliance product development should view adaptability as a key feature and part of the product’s core value proposition as much as any of its monitoring features.
Prototyping for Functionality and Usability
Building compliance software means living in the gap between what stakeholders want and what they actually need.
A compliance head might ask for 50 fields on a customer risk assessment form because that’s what the old system had. But do analysts actually use those fields? Does the data improve decisions, or does it just create noise? Is the complexity there because it adds value, or because nobody questioned it?
Iterative testing forces teams to confront these important questions and assess which capabilities actually deliver value, and which lead to confusion. Some important questions to ask during the process are:
- Do analysts rely on this data?
- Do different stakeholders interpret the information in the same way?
- Is this feature adaptable to future regulatory changes, or will it require a complete redesign?
The answers to these questions usually aren’t the result of workshops, but of allowing engagement with the product to see how it responds to tests, how key stakeholders interact with it, and assessing the extent to which it creates friction or integrates seamlessly into the customer’s existing operational framework.
This can generate pushback from some customers who see reviewing decisions they felt were settled as a misuse of time and resources, or something that can threaten delivery timelines. In such cases, it’s important to emphasize that numerous smaller-scale iterations in the short-term can substantially increase a compliance software’s life cycle, reducing costs in the long run.
Managing the Iteration Frustration
Rapid prototyping sounds elegant in theory. In practice, it means showing clients work that isn’t finished. It means hearing “this isn’t what I expected” and treating that as valuable information rather than failure. It means managing expectations when stakeholders are accustomed to seeing polished demos, not work in progress.
This process requires patience from customers and clear communication from vendors.
It’s important to communicate that the first prototype will be incomplete. Each new iteration will get closer to meeting client expectations as you continue to test assumptions and assess capabilities. This is the process working, not the process failing.
Building on flawed assumptions is the Achilles heel of any new product development. Identifying flaws early saves time and money in the long term.
Strong product management and project management are key to making this sustainable. Without clear communication, disciplined prioritisation, and relentless expectation-setting, iterative development becomes chaotic. The blueprint requires adherence to an operational approach that is based on transparency and trust.
The 95/5 Principle for Automation with Oversight
Every compliance platform faces a fundamental choice: how much should the system do versus how much should humans do?
Full automation sounds appealing until you realise that regulators expect human judgment at critical decision points. Accountability matters, as does explainability. A black box that makes decisions nobody can justify is a liability, not an asset.
Conversely, a product that requires too much human input is also a strain on resources and undermines the value of technology. If analysts spend their days copying data between systems, formatting reports, and chasing false positives, the problem hasn’t been solved; it’s just been shifted to humans.
A useful balance is 95/5:
- 95% of monitoring, flagging, audit trails, and calculations are handled by technology.
- 5% handled by humans, where critical judgments are based on context and edge cases that the algorithm can’t fully capture.
This approach allows each side to handle what they do best. Technology can handle repetitive processes at scale, while humans focus on instances where nuance is required to make a decision.
This isn’t about removing humans from compliance. It’s about removing the wrong work from humans. An analyst reviewing 200 alerts a day isn’t exercising judgment; they’re drowning in a task that a machine can do in seconds. An analyst reviewing 20 alerts that the system has pre-qualified, enriched, and documented? That’s human expertise applied where it matters.
The 95/5 split forces architectural discipline. The system has to be smart enough to handle the 95% reliably, and humble enough to surface the 5% cleanly. It has to know what it knows and know what it doesn’t.
Engineering for Regulatory Intent
There’s a temptation in software development to separate the “technical people” from the “business people.” Engineers build what they’re told. Stakeholders specify what they want. A wall of documentation sits between them. Miscommunication hides in the gaps.
This doesn’t work for compliance technology.
The engineer who understands why BaFin cares about data lineage builds a different system than one who’s just implementing a requirements document. The product manager who’s sat through a regulatory examination asks different questions than one who hasn’t. The architect
who’s seen a platform collapse under changing requirements designs differently than one who hasn’t.
Throughout the iterative process, it’s important to remain deeply involved in functional discussions between all stakeholders. It’s precisely at this intersection of technical and business demands that real design happens, and where vendors can incorporate wide ranging needs into successive prototypes.
Mindset Over Methodology
Teams often focus on centering their work around specific methodologies. Whether it be Agile, Waterfall, or a hybrid mix, the overfocusing on methodology misses the most important point.
In compliance technology, mindset matters more than methodology.
The mindset that regulations will change, so flexibility isn’t optional. The mindset that iteration is a necessary part of the process, that automation exists to support accountability, and that building the right system on a longer timeline matters more than delivering a flawed system quickly.
Tools and frameworks come and go. Methodologies evolve, but the fundamental challenge remains: building systems that work today and adapt tomorrow, for clients who need both stability and flexibility, in a regulatory environment that never stops moving.
Mohan Paranthaman and Karthik Iyengar are the Co-Founders of We Build Products, a Berlin-based RegTech company building composable compliance platforms for banks and fintechs. Mohan brings two decades of banking compliance experience, including hands-on BaFin audit exposure at major European institutions. Karthik has built compliant systems at scale for Shopify, Klarna, and SME lending platforms like Spotcap.