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How advances in RegTech are being promoted by regulators

How advances in RegTech are being promoted by regulators
March 31, 2017

At the turn of the last decade, two events occurred that continue to impact the regulatory landscape of the financial services industry to this day. The first of these is the 2008 financial crisis, which led to the consensus that existing regulations must be reevaluated and revamped. Fintech organizations emerged simultaneously – offering a host of technology-driven products. However, these firms were heavily reliant on consumer data and, consequently, governing bodies pushed for more stringent laws to ensure data integrity and privacy. The confluence of these factors led to the rise of ‘regulatory technology’ or RegTech, the use of leading-edge technology, like cloud computing, Big Data analytics, and machine learning, to navigate regulatory challenges in the financial market.

At the end of 2015, Financial Conduct Authority (FCA), the UK Regulator, took the bold step of requesting the nascent RegTech industry to put forward its ideas and work in collaboration. The call for input by the FCA highlighted the following – 

  1. How RegTech outcomes can be engineered to drive efficiency and transparency?
  2. Where should the effort be directed to ensure maximum collaboration between various parties involved and interested in RegTech?
  3. What are the challenges and risks faced by FinTech firms in providing RegTech to financial services firms and adopting them?
  4. Which of the existing regulatory rules, policies, and guidance are restricting innovation and implementation of RegTech solutions? 

What are the challenges and risks faced by FinTech firms in providing RegTech to financial services firms?

Rather than working in isolation, which creates silos and encourages regulatory arbitrage, the UK regulator saw the wisdom of engaging the industry at an early stage. By choosing to work in partnership with the RegTech community, it is striving to promote innovation and advancement in use of RegTech in financial services whilst balancing the needs for regulation. These measures are widely expected to accelerate growth within the Risk and Compliance space and boost the economy. The results published in the FS16/4 paper stated:

  • Efficiency and collaboration: More efficient ways of sharing information using different software, cloud computing, shared utilities, and online platforms  
  • Integrate, standardize, and understand - Using IT to drive efficiencies that converts regulatory text into a programmable language; structure of regulatory data; application programme interface, and robo-handbook
  • Predict, learn, and simplify - Big data analytics, risk and compliance monitoring, modelling and visualization technology, and machine learning
  • New directions - Blockchain, inbuilt compliance, biometrics, system monitoring, and visualization

The partnership fostered by the FCA is expected to promote a safer and more secure financial system through deeper industry relationships — a fact testified by the fact that 67% of the respondents belonged to board level or senior leadership. Participants believed that clarification of expectations would standardize industry practices, resulting in better integration of internal data and processes and compliance monitoring.