Regulatory technology

At a governmental level, the FCA was the first governmental body to establish and promote the term RegTech, defining this as: "RegTech is a sub-set of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities".{{Cite web|url=https://innovate.fca.org.uk/innovation-hub/regtech-programme|title=RegTech|last=FCA|date=2016-02-23|website=innovate.fca.org.uk|publisher=Financial Conduct Authority|access-date=2016-06-05}}

In March 2015, a report by the UK Government Chief Scientific Adviser, stated that "FinTech has the potential to be applied to regulation and compliance to make financial regulation and reporting more transparent, efficient and effective – creating new mechanisms for regulatory technology, RegTech".{{Cite web|url=https://www.gov.uk/government/publications/fintech-blackett-review|title=FinTech: Blackett review - Publications - GOV.UK|website=www.gov.uk|access-date=2016-07-09}}

Yet the vision of a technology-led regime has already been proposed as early as 2014, by Andy Haldane, during a keynote address at Birmingham University

I have a dream. It is futuristic, but realistic. It involves a Star Trek chair and a bank of monitors. It would involve tracking the global flow of funds in close to real time (from a Star Trek chair using a bank of monitors), in much the same way as happens with global weather systems and global internet traffic. Its centerpiece would be a global map of financial flows, charting spill-overs and correlations.Andy Haldane, Chief Economist, Bank of England, Speech at the Maxwell Fry Annual Global Finance Lecture: Managing Global Finance as a System, Birmingham University 10 (Oct. 29, 2014).

On the private sector side, two pressure points have facilitated the development of RegTech. On the expense side, post-crisis fines have exceeded US$200 billion,{{cite web|url=https://www.cnbc.com/2015/10/30/misbehaving-banks-have-now-paid-204b-in-fines.html|title=Misbehaving banks have now paid $200B+ in fines|first=Jeff|last=Cox|website=CNBC |date=30 October 2015}} and the ongoing cost of regulation and compliance has become a primary concern industry-wide.{{cite web|url=http://thomsonreuters.com/en/press-releases/2015/05/cost-of-compliance-survey-shows-regulatory-fatigue-resource-challenges-personal-liability-to-increase.html|title=Thomson Reuters Annual Cost of Compliance Survey Shows Regulatory Fatigue, Resource Challenges and Personal Liability to Increase Throughout 2015|date=13 May 2015}} On the revenue side, competition from FinTech companies is expected to put US$4.7 trillion of revenues at risk.{{cite news|url=https://www.economist.com/news/leaders/21650546-wave-startups-changing-financefor-better-fintech-revolution|title=The fintech revolution|newspaper=The Economist }} These expense and revenue factors are driving the development of RegTech. As with FinTech,{{Cite SSRN|title=The Evolution of Fintech: A New Post-Crisis Paradigm?|date=October 2015 |ssrn=2676553|last1=Arner |first1=Douglas W. |last2=Barberis |first2=Janos Nathan |last3=Buckley |first3=Ross P. }} the 2008 GFC represented a turning point in the development of RegTech. However, the factors underlying and the beneficiaries of RegTech are quite different. FinTech growth has been led by start-ups (now increasingly partnering with, or being acquired by, banks and other traditional financial institutions),{{cite web|url=https://www.finextra.com/newsarticle/29443/banks-rushing-to-collaborate-with-fintech-startups|title=Banks rushing to collaborate with fintech startups|last=Finextra|date=16 September 2016}}[http://www.businessinsider.com/1-in-5-european-banks-would-buy-fintech-startups-2016-6/?r=AU&IR=T EY, Fintech: Are Banks Responding Appropriately? (2015); Andrew Meola, 1 in 5 European Banks Would Buy FinTech Startups, Business Insider (July 17, 2016)], whilst RegTech developments to date are primarily a response to the huge costs of complying with new institutional demands by regulators and policy-makers.[7] See Gregory Roberts, FinTech Spawns RegTech to Automate Compliance, [https://www.bloomberg.com/enterprise/blog/fintech-spawns-regtech-automate-compliance-regulations/ Bloomberg (June 28, 2016)]

For the financial services industry, the cost of regulatory obligations has dramatically increased, such that 87% of banking CEOs in one survey consider these costs as a source of disruption. This provides a strong economic incentive for more efficient reporting and compliance systems to better control risks and reduce compliance costs. Furthermore, the massive increases in the volume and types of data that have to be reported to regulatory authorities represent a major opportunity for the automation of compliance and monitoring processes. For the financial services industry, the application of technology to regulation and compliance was viewed as potentially increasing efficiency and the economy of scope and scale of incumbents.{{cite web|url=https://mitsloan.mit.edu/ideas-made-to-matter/compliance-demands-spur-firms-to-invest-regtech-and-more|title=Compliance demands spur firms to invest in 'regtech' — and more|website=MIT Ideas Made to Matter|language=en-US|access-date=2024-04-10|date=8 March 2022}} A study on United States–based financial advisers suggests that government-induced adoption of regtech increased market concentration linked to heightened acquisition activity and labor flows of high-quality workers to firms with better technology.{{Cite journal|last1=Charoenwong |first1=Ben |last2=Kowaleski |first2=Zachary |last3=Kwan |first3=Alan |last4=Sutherland |first4=Andrew |title=RegTech: Technology-driven compliance and its effects on profitability, operations, and market structure|journal=Journal of Financial Economics|date=April 2024|volume=154 |issue=April |doi=10.1016/j.jfineco.2024.103792 |ssrn= 4000016|doi-access=free }} However, there may be other indirect benefits from regtech that are not considered in the study.

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Category:Financial regulation