RegTech — Not Reg Plus Tech, But Reg to the Power of Tech

FinTech Will Drive Innovation and Automation to Financial Regulation
by John Dwyer, July 28, 2015
Industry Trends
Global, EMEA

Abstract

The disruption of finance will be accompanied by innovation to financial regulation and ultimately to the automation of regulation.

Technology adoption in financial markets will require more efficient and effective approaches to regulation of financial markets. Greater quantities of data, both structured and unstructured, are being generated and analyzed to make financial decisions. Regulation is also adding to the production of larger quantities of data.

The emergence of FinTech has disrupted the financial sector, and will disrupt financial regulation as well. The impact on regulators will be driven by:

  • A changing marketplace of financial institutions as new companies emerge.
  • New business models (such as P2P lending and crowdfunding).
  • Rapid change driven by new technology coupled with growth in data and analytics.
  • The creation of “Financial Hybrids” as traditional financial firms and nontraditional financial firms begin to merge.

Current financial regulation is characterized by an alphabet soup of regulators which can overlap and create different interpretations of the same rule. Innovation and automation of regulation should, over time, create the circumstances for significant streamlining and equip the regulatory bodies that remain to keep pace with the evolution of the technology-led financial industry far more efficiently.

Regulation has been in a state of major change since the global financial crisis. The shift towards a risk-based approach is driving regulators to ever more granular data requirements across every aspect of a financial institution’s business. Numerous deadlines challenge institutions because they have insufficient time to manage each deadline.

The key ingredient in a strategic response will be the appropriate use of technology. Currently within finance there is a shift towards technology-driven innovation, and incumbent FIs that fail to adapt to this environment will continue to struggle with regulatory demands and timetables.

Ultimately, the future of regulation of finance will be increasingly automated, leveraging:

  • Active and productive two-way regulatory dialogue and regular feedback loops.
  • Standardized presentation of data (regional/global).
  • Automation of data collection.
  • Open source compliance systems (encouraging FinTech participation).
  • Compliance criteria built into protocols (removing human error).

“Regulators, incumbent financial institutions, and emerging FinTech companies will increasingly leverage technology to move towards real-time financial regulation in a data-rich and analytical manner. There will be shorter and more productive feedback loops between regulators and financial institutions, with a greater level of review of existing regulations to ensure that they remain relevant and effective,” says John Dwyer, senior analyst at Celent and author of the report.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

2

 

Five Key FinTech Themes

2

 

Implications for Financial Regulation

2

 

Streamlining of Regulatory Bodies

3

 

Collaboration Between FIs, FinTech, Regulators, and Academia

3

The Trajectory of Financial Regulation

4

 

A Movement Towards a Risk-Based Approach

4

 

A Technology-Led Strategy

5

 

Don’t Think Reg+Tech, Think RegTech

5

 

Regulatory Pendulum

6

The Implications for Regulators

7

 

Movement Towards Risk-Based Regulation

7

 

The Future

8

Leveraging Celent’s Expertise

9

 

Support for Financial Institutions

9

 

Support for Vendors

9

Related Celent Research

10

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