Here is our pick of the 3 most important XBRL news stories this week. 1 EU allows member states to delay introduction of ESEF by one year The European Parliament and the Council also agreed today to an amendment of the Transparency Directive allowing Member States to delay by one year the application of the […]
Here is our pick of the 3 most important XBRL news stories this week. 1 Global regulatory community lines up behind behind digital reporting The global regulatory community has put its support behind digital regulatory reporting (DRR) initiatives acknowledging supervisors require the ability to collect better quality data more efficiently. The Bank of International Settlements (BIS), […]
Here is our pick of the 3 most important XBRL news stories this week. 1 Leveraging technology to support supervision: challenges and collaborative solutions Speech by Benoît Cœuré, Head of the Bank for International Settlements Innovation Hub, at the Peterson Institute for International Finance, Financial Statement event series, 19 August 2020. The head of the […]
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Here is our pick of the 3 most important XBRL news stories this week. 1 Comparing changes in risk disclosures Not long ago the Securities and Exchange Commission adopted new rules to reduce the amount of disclosure that firms need to make about business risks, legal proceedings, climate change, and other issues. Those changes go into […]
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This is the final in a 5 part series (published weekly) written by guest author Amber Sutherland a banker who understands technology who currently works for Silent Eight an AI-based name, entity and transaction adjudication solution provider to financial institutions. Click here for Index and Part 1. Operational resiliency and third party due diligence have […]
This is the 4th in a 5 part series (published weekly) written by guest author Amber Sutherland a banker who understands technology who currently works for Silent Eight an AI-based name, entity and transaction adjudication solution provider to financial institutions. Click here for Index and Part 1. Better can mean different things to different organizations […]
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This is the third in a 5 part series (published weekly) written by guest author Amber Sutherland a banker who understands technology who currently works for Silent Eight an AI-based name, entity and transaction adjudication solution provider to financial institutions. Click here for Index and Part 1. Many financial institutions have the dueling mandates to […]
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This is a 5 part series (published weekly) written by guest author Amber Sutherland. AI in Banking is a massive subject that needs somebody who understands both subjects. We found that person in Amber Sutherland who has over fifteen years of experience in finance, business development, and regulatory technology. She worked for a large […]
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Since the AI boom, there have been several stories about people losing jobs. Repetitive jobs are the ones that are most suited for robots to take over. So would there be a time when we get to tell the Regulators “You are Fired”?
Regtech had a phenomenal year 2017, with global funding reaching $1.1 Billion across 81 deals. And the first half of 2018 alone saw funding go past $1.3 Billion across 36 investment deals (KPMG Research). Thanks to an avalanche of regulations that banks had to comply with from PSD2, GDPR, MiFID2.
Since the 2008 financial crisis, banks have paid $321 BILLION in fines
The SEC allocated $1.78 Billion to employ 4870 who were making sure Banks were compliant. Now, with the rise of AI across the regulatory value chain, the efficiencies to be had are immense with intelligent automation.
With an ocean of regulatory text to go through, and with several regulatory alerts to monitor on a regular basis, AI would be the way forward. I remember my Barclays days when there were several vendors claiming to make regulatory reporting easier through a workflow solution.
When I was at PwC, we started exploring solutions like IBM Watson for regulatory and legal language parsing. Regtechs were getting more and more intelligent, and with the amount of capital that was flowing into this space, they had to. Thanks to those efforts, there are several players to proactively identify and predict risks.
As more innovation happens in this space, ease of use moves on to automation, and automation to intelligent automation. We also have started to see regulation specific solutions. Many of them existed in their simplistic form before, but they now come with better technology. Open banking has had a few focused Regtech solution providers like Railsbank. Droit provides post trade reporting for OTC transactions as per MiFID 2.
The SEC’s proposed 2017 budget is $1.78 BILLION
This trend can further go up the value chain, and apart from serving banks, technology could serve regulators. Regulators have to parse through tonnes of data, use pattern recognition, NLP and predictive analytics to identify breaches proactively. Regulatory sandboxes help, and with more innovative firms looking at automating regulatory activities, Robo-regulators are not far away.
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Regtech is a £50 Billion per year opportunity, and that is just in the UK. That is due to the hundreds of millions of pages in regulatory texts that firms have to deal with, to be compliant. It is critical that firms equip themselves with technology solutions that will help them navigate through the complex world of regulation.
Please note that while Regtech covers regulations across industries, I am taking the liberty of using this term loosely to refer to FS based Regtech use cases.
During my time at PwC, I was involved in evaluating AI products for their Legal and Regulatory offerings. We were looking into IBM Watson, and had some interesting conversations on sending Watson to school to learn Legal and Regulatory language (in English). The AI engine (deep learning, NLP) would then be able to provide guidelines to firms in plain English on what was needed for regulatory compliance.
It has been almost five years since then and we have seen various developments across the globe. Regtech has never been more relevant. US and Europe have more than 200 Regtech firms, as these two regions are clearly seen as the pioneers of financial services regulation.
‘The FCA is the most innovative regulator in the world in terms of using new technologies and the other regulators look up to them”
In my opinion, Europe and in particularly the UK’s FCA are world leaders in working with innovative ways of achieving regulatory compliance. Be it payments, open banking or crypto currencies, they have taken a collaborative approach in nurturing the right firms. 37% of Regtech investments across the globe happen in the UK.
But its the happenings in Asia that I find more interesting from a Regtech stand point.
Fintech India has seen massive growth with digital payments being well backed by policies and technology infrastructure. The rise of PayTM, UPI and more recently Google Tez have all helped in bringing the total transaction volume of digital payments to $50 Billion. But with growth comes greed, and regulations have to kick in. There were tens of P2P lending firms in India until the Reserve Bank of India (RBI) launched their regulatory framework for P2P lending in Q4 2017. There are now only a handful of well capitalised P2P lending platforms.
There is a lot of work to be done around automation of transaction reporting. For example, the Microfinance market in India is still largely cash based and reporting is manual. There are startups trying to disrupt this space with cloud enabled smart phone apps, that allow for real time reporting of transactions, when an agent is on the ground collecting money from a farmer. This allows for massive gains in operational efficiency, curbs corruption, but more importantly helps transaction reporting so much easier.
I see India as a market, where Regtechs can help the RBI develop a regulatory framework across Financial Services.
China’s P2P lending market is worth about $200 Billion. Recent frauds like Ezubao, where about a million investors lost $9 Billion, indicate that the market needs to have strong regulatory controls. The scam led to a collapse of the P2P lending market in China. A regulatory framework that helps bring credible players to this space, well supported by a bunch of top Regtechs will help the status quo.
Singapore is the destination for Regtechs in Asia – without a doubt. After the US and the UK, Singapore attracts the most investments into Regtech firms. The support that Monetary Authority of Singapore (MAS) provides to budding startups is the real differentiation that Singapore has over Hongkong as a Fintech hub.
MAS have recently tied up with CFTC (Commodity Futures Trading Commission) in the US to share the findings of their Sandbox initiative. Such relationships between regulators help keep regulatory frameworks aligned across jurisdictions . So, when a Fintech is looking to expand beyond borders, they don’t have to rethink operational, strategic or technology aspects for the new jurisdiction and they can focus on what matters – the consumers.
As Fintech evolves over the next few years, there are several ways in which Banks, Insurance providers, asset managers and regulators can work in partnership with Regtech firms. In some areas, these firms will piggyback off what the incumbents have or haven’t done.
There is often a rule of thumb in the top consulting firms – build propositions in an area where there is fire. In other words, if a client has a major issue that could cost them money and/or reputation, come up with a solution for that. This is particularly true with Regtech firms, where they focus on an area that has a serious lack of control and governance.
However, in many parts of the world, there is a genuine opportunity for Regtechs to go a step further and define the controls in collaboration with the regulators, and perhaps ahead of the regulators.
Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a speaker.
Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.