In this presentation Daniel Broby, Director at the Centre for Financial Regulation and Innovation at the Strathclyde Business School, provides an overview of the ‘RegTech’ sector and Scotland’s opportunity to be a world leader in this fast growing industry.
What is RegTech?
RegTech is the use of technology to solve regulatory problems. In other words, RegTech brings together three key elements of regulation, data, and people in order to enable firms to achieve a culture of compliance.
It is the technology that brings these elements together in a way to empower and enlighten both the institutions and their regulators.
Traditionally the work of compliance and risk officers was very manual, but using spreadsheets and old ways of doing is just no longer suitable. Now is the time of cloud-based, date-driven technologies; using algorithms and rule-based engines to do all the heavy lifting.
There is a huge difference between RegTech and FinTech. FinTech aims only at financial services and focuses on disruption, competition, and cutting-edge technology. RegTech is much broader than FinTech.
RegTech is predicted to be one of the fastest-growing sectors of 2020. Whilst the USA is the biggest market in terms of compliance spending, most of the RegTech innovation is happening in Europe. Scotland can play an important role here.
Glasgow has a growing RegTech ecosystem, providing the foundation for the country to become a major player in the sector.
The last crisis in 2008 exposed a significant failure in regulation and supervision, so financial law and compliance are now very much on the agenda. There is more financial regulation coming this year than at any time in history. But technology will help here. The innovation of RegTech and FinTech can create potential gain not only for the regulators but also for the consumers too. This innovation will lead to supervisory gains for the FCA as well as other organizations. The financial industry needs to regain its trust and RegTech can help.
According to the former governor of the Bank Of England, Global Banks’ misconduct costs were over $320 billion which is a great loss for the economy. Compliance is a substantial cost centre. Optimizing client outcomes is important and technology can help know the client better. Oversight and analysis go both hand in hand and both of them can be automated. That’s why good oversight is very important.
Knowing customers is a very important thing. But to know customers in an old fashioned way is very tiresome and time-consuming. Technology can help here through Data Mining and Open Banking. This digitalization can help to save both time and cost.
Lawmakers and compliance personnel have to change their skillset, because big data requires programming, it requires data analytics and different software tools to be able to get the most from it. AI (Artificial Intelligence) is at the core of this. AI is the ability of computer programs to adapt and evolve without human input through the process of machine learning. Regulation focused technology can make reporting procedures such as know your customer rules, tax reporting, or anti-money laundering rules easier.
There are risks in banking like credit, operational, liquidity, and reputational risk but AI has the potential to mitigate these risks. The application of AI can also add significant economic value to banking.
Furthermore Fintech innovations require testing, software should be evaluated before being introduced to the market, but this can be risky unless supervised. Fortunately, this can be done through a Regulatory Sandbox. This allows the service to be checked for reliability and robustness, using consenting live accounts with blinded data.
With the large group of RegTech expertise in Glasgow, Strathclyde can provide a base qualification for compliance personnel. This type of expertise needs to be taught for such a qualification and will be part of a dialogue that needs to be had with the industry. We would envisage things like broad coverage of regulatory bodies, the compliance function, financial crime, and also all the IT aspects.
In conclusion, Strathclyde can (1) act as an honest broker among financial institutions, regulators, and the RegTech outsourcing industry (2) contribute to important areas of oversight and risk control, (3) develop a data lake of blinded information to test new concepts, and (4) assist with the continuing professional development of the RegTech industry in Scotland.
1. (0:00-0:10) – Introduction.
2. (0:11-1:37) – Regulatory Technology in Scotland.
3. (1:38-2:38) – Why Good Oversight Is Important.
4. (2:39-4:03) – Digitalization And The Move To Real TIme Reporting.
5. (4:04-5:49) – What Strathclyde Can Bring To The Table.
6. (5:50-6:41) – Artificial Intelligence And The Evaluation Of Banking Risk.
7. (6:42-7:21) – Risk Oversight.
8. (7:22-8:33) – Creating A Financial Data Lake For Academic Fintech Research.
9. (8:34-9:42) – Creating A Scotting Based RegTech Qualification For Compliance Personnel.
10.(9:43-10:21) – Conclusion.