Fintech companies offering products that help meet regulatory requirements will find themselves in huge demand during 2017 and beyond according to a new report.

The report from PwC and Startupbootcamp,  Start-up view: a year in FinTech, analysed application data from Startupbootcamp’s fintech accelerator programme alongside the volume of deals in the UK market last year.

The study said many incumbent financial services providers have increased compliance hiring and spending and will have to adopt new technology in order to protect margins and reduce costs. For example, the financial industry is preparing for the MIFID II regulations which come into effect from the beginning of next year, the Revised Payment Service Directive which will break the bank monopoly on customer account information and payment services, as well as the UK’s decision to leave the European Union.

“Fintech companies offering regtech solutions will find themselves in huge demand during 2017 and beyond,” said the report. “More such businesses are emerging: 4% of applications to Startupbootcamp came from regtech companies in 2016.”

As a result, incumbents have increasingly begun to collaborate with fintech companies, especially in areas such as artificial intelligence, big data and blockchain. However the report warned that incumbents have found it difficult to measure the success of relationships with fintech companies as the majority of research and development may not lead to full-scale partnerships or acquisitions.

Steve Davies, EMEA fintech leader at PwC, said in a statement: “While questions remain on how big players can measure their success in FinTech, the reality is investment in innovation is now necessary for financial services companies to keep pace with competitors both within and outside their own industry.”

Many more startups have begun working with financial services to use artificial intelligence to identify and solve customer issues. For example, Rabobank North America Wholesale Banking set up a pilot with Enterprise Bot, which creates virtual assistants using artificial intelligence, and is part of the 2016 Startupbootcamp cohort.

The report said that despite Brexit, the UK will remain a global fintech centre. UK-based startups made up 34% of all applications to Startupbootcamp last year, up from 22% in 2015.

In addition, several countries are following the UK’s lead in introducing regulatory sandboxes to reduce regulatory restraints and increase innovation in their countries. For example, Lithuania is working with the Financial Conduct Authority to ensure that businesses approved by the UK regulator get fast-track approval and London-run Revolut and Contis have already secured passporting rights.

The study also noted that London’s pre-eminence is due to a  number of disparate factors, many of which are unaffected by Brexit such as the collaborative regulatory regime driven by the FCA and the large concentration of financial services businesses and technology companies, in close proximity to one another.

“Concerns around Brexit have been minimal and mainly hypothetical, explained by the fact that most early stage startups tend to be predominantly focused on their domestic market,” added the study.

In addition, since Brexit, Japanese firm Softbank chose London as the headquarters for its £80bn technology investment fund.

Francisco Lorca, managing director of Startupbootcamp FinTech London, said in a statement: “Despite political, economic and financial uncertainty causing people to believe fintech might be derailed, at Startupbootcamp we have yet to see any real impact.”