By Dr Drew Donnelly, Compliance Quarter.
Today, continuing in our series of articles concerning developments in the fintech regulatory space (including blockchain), we discuss regulatory technology or ‘regtech’. Specifically, we look at a recent report from the Australian Securities & Investments Commission (ASIC) on its fostering of the sector.
What is regtech?
In many industries, both in Australia and internationally, regulatory compliance is becoming increasing complex – and costly. At the same time the risk of non-compliance for a business is growing, both through increased enforcement and the potential for reputational damage. By way of example, in Budget 2017 and financial services: an opening for the minnows and a warning for the sharks, we discussed the Government’s implementation of a new banking executive accountability regime, as well as increased funding to the Australian Competition and Consumer Commission (ACCC) to carry out investigations.
In light of increasing compliance complexity, it is essential for businesses to find more efficient mechanisms for managing compliance. This is where Regulatory Technology or ‘regtech’ comes in. Just as fintech leverages technology to drive more efficient and effective financial services, regtech uses technology to drive similar improvements in regulatory compliance.
Applications of regtech
In Future possibilities for Australian business with blockchain we talked about some different possible applications of blockchain technology. Some of those potential applications, such as identity verification, could be employed as regtech solutions.
Another example of a regtech solution is a cognitive platform. On 14 June, IBM launched a range of products designed to help financial institutions meet their regulatory responsibilities. IBM’s cognitive platform supports these products by learning regulations (60,000 regulatory citations to date) and then reviewing transactions for compliance.
Specific regulatory areas where regtech could be deployed, include:
- For example, market regulators often require the reporting of vast quantities of transaction data (both to the regulator and internally). Regtech could be utilised to flag any suspicious transactions
- Human resources and organisational monitoring. Regtech could be used to flag internal documents and behaviours using algorithms that pick out unusual or risky behaviour
- Modelling and forecasting. Regtech could enable both businesses and regulators to better predict trends in their industry.
ASIC’s fostering of regtech
In mid-2016, ASIC extended its Innovation Hub, which supports fintech innovation in Australia, to include regtech innovators. In a report released on 26 May 2017, ASIC discusses its proposed future direction for regtech in Australia.
Aside from informal support for regtech developers through the Innovation Hub, there are several other areas where ASIC is currently working to support the regtech space:
- Engagement with the regtech community
- Technology trials, including a cognitive tool to assess the webpages of providers of self-managed superannuation funds and a social media monitoring tool
- International referrals. Through agreement with overseas regulators, ASIC can refer businesses to their overseas regulator counterpart.
ASIC’s proposal for future direction includes:
- Initiating a new regtech liaison group
- Continued use of technology trials
- Hosting a problem-solving event, otherwise known as a “hackathon”. This could be on a particular topic such as regulatory reporting or cybersecurity.
ASIC welcomes feedback, particularly on the future direction for regtech, by 5 July 2017. The report is available here http://www.asic.gov.au/media/4270022/rep523-published-26-may-2017.pdf.
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