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Regulatory Technology

Harvard (Charles River) IMG 7698
(Harvard University - Harvard Taiwan Student Association)


- Overview

Regulatory technology, also known as "RegTech", a subclass of FinTech, is using technology, particularly information technology, in the context of regulatory monitoring, reporting and compliance benefiting the finance industry. Just as FinTech is being used to digitize customer-facing financial services, RegTech promises to digitize back-office regulatory compliance, simplify regulatory reporting and empower staff to better assess risk and monitor regulatory compliance. RegTech is another example of an industry that is being changed rapidly by software. 


- To Improve Risk Controls

In the wake of the financial crisis of 2008, financial regulators wanted to ensure the industry would not face the same problems again. New regulations were put in place to improve risk controls, maintain capital and create a more transparent financial sector. With financial regulation constantly changing, banks and financial institutions are under constant pressure to keep up to speed with the latest rules. Now, a new wave of technology is emerging to help these organisations make sure they understand the rules and can manage their risks. 


- RegTech Service Companies

RegTech companies were born out of this combination of regulatory change and more efficient technology. There is a range of companies offering these kinds of services. Some offer solutions for financial institutions to help them comply, while others are aimed at helping policymakers monitor those they are regulating. RegTech companies work in collaboration with financial institutions and regulatory bodies, and utilize cloud computing, big data and data visualization techniques, and blockchain for sharing of information. RegTech is an exciting development that contains the following characteristics: Agility, Speed, Integration, and Analytics. Ultimately, RegTech will be use those characteristics and information to enable more efficient and effective regulation and compliance. 


- The Technologies of RegTech

There are a wide variety of technologies being used in RegTech solutions. They all need to be cloud-based. This will ensure that they are responsive and flexible enough. This includes big data and data visualization techniques as well as blockchain technologies used as immutable ledgers of shared information. Other applicable technologies include machine learning, biometrics, the interpretation of unstructured data such as e-mails and Facebook posts, and the use of application programming interfaces (APIs). These tools will be used for aggregating big data, modeling risk for bank stress-testing, monitoring of capital-requirement compliance, updating compliance manuals, improving anti-money laundering and know-your-customer (KYC) programs and preventing fraud and in-house violations. In fact, blockchain and biometrics could be the driving forces that really expand the RegTech industry. Biometric technology could serve as a more efficient way to verify identity and work in collaboration with other technologies. 


- Adoption of RegTech

Adoption of RegTech will provide operational efficiencies and cost benefits when applied to current compliance and risk management practices. It is anticipated that regulation will only continue to increase with more demand to oversee data, reporting, and operational processes. Fund managers and banks are looking at supporting and partnering with RegTech startups to address the growing regulatory and compliance demand as well as assist in spreading adoption of RegTech solutions for payments and governance. 


- Collaboration of RegTech 

For a RegTech solution to be successful, collaboration among the following players: "Regulators, RegTech Firms, Professional Service Firms, and Financial Institutions" will be essential so that barriers like forming "a common solution, establishing a set of standards, understanding complex regulations, and help firms and regulators build more efficient, automated, compliance processes" can be overcome. When these parties work together, they will be able to drive innovation within the RegTech industry, develop advanced data analytics capabilities, and reduce the cost of compliance in financial services. 


- RegTech Applications

The application of RegTech is still in its infancy. Some ideas require the buy-in of regulators and the maturation of technology, while others are as simple as providing better information to compliance officers—and are available today.


 [More to come ...]



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