The REGTECH Book by Janos Barberis & Douglas W. Arner & Ross P. Buckley

Author:Janos Barberis & Douglas W. Arner & Ross P. Buckley
Language: eng
Format: epub
ISBN: 9781119362173
Publisher: Wiley
Published: 2019-06-27T12:00:00+00:00

Notes

1https://www.gov.uk/government/publications/retail-banking- market-investigation-overview

2https://www.gov.uk/government/news/cma-paves-the-way-for-open-banking-revolution

3https://www.finextra.com/newsarticle/30077/cma-issues-final-order-on-open-banking

4http://bank-as-a-service.com

7

RegTech from a Regulatory Perspective

As mentioned at the start of the book, the RegTech industry has a diverse client base. While regulators are key actors in the promotion of this sector; they are increasingly direct consumers of these solutions as well. The following chapters will provide more detail on this trend.

This demand is the result of factors which each have their market and geographical specificities. While the UK has been at the forefront of RegTech development and Europe generally has been progressive regarding innovating regulatory reforms, growth in emerging markets has a different origin.

One such example is the R2A accelerator, a non-profit accelerator program co-sponsored by three central banks, each seeking to improve their supervisory capacity using technology. Regulators in emerging markets are facing a double challenge. Similarly to their Western counterparts, regulators often have resource constraints for market supervision, which in effect translates to limited if not limiting workforce capacity to properly oversee authorized financial institutions. Here RegTech solutions not only provide efficiency gains but become tools for more comprehensive supervisory capacity.

What is more, regulators in emerging markets are in the middle of a massive expansion in financial inclusion. While positive at a societal and economic level, the increasing number of individuals consuming financial products opens up many opportunities a path for misselling or fraud, which can occur if market penetration of financial services does not take place in parallel with end-user financial education. Thus already stretched regulatory resources will come under even more pressure as more individuals become banked.

Other markets, such as China, display regulators with different incentives to use RegTech solutions. It is clear that China's leading position in the deployment of financial services via tech companies is challenging the pre-existing regulatory model. Indeed, the effective supervision of large numbers of FinTechs and TechFins across a country of almost 10 million km2 requires the use of big data analytics and AI, as was mandated by PBOC. Not only this but the emergence of tech companies entering finance means that they immediately have the scale and distribution impact of what would otherwise be considered a systemically important financial institution. Once again their adequate supervision requires new analytical tools.

While the incentive of regulators globally varies as to why they add RegTech solutions as part of their supervisory toolkit, the move towards RegTech is consistent. Market supervision will go from a push model, where firms fill in reports, to a pull model where regulators extract in real time the information they need to supervise a firm.

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