We are beginning to see regulators around the world facilitating the adoption of RegTech.
In Asia, electronic-Know Your Customer (e-KYC) products have been rolled out by two regulators, the Monetary Authority of Singapore (MAS) and the Financial Services Regulatory Authority (FSRA) of Abu Dhabi.
MAS began with a pilot programme collaborating with two Singaporean banks that linked to trusted, government-collected personal data sources to be used for KYC purposes. If MAS finds the pilot successful, the plan is to further evolve the project beyond just the banking sector.
Similarly, the FSRA has launched an e-KYC product with six regional banks. Currently, the aim is to develop a proof-of-concept to determine the governance framework and functional requirements of the product.
For both programmes, the hope is to achieve greater efficiency and cost-effectiveness in satisfying KYC requirements.
Both examples demonstrate the leading role that regulators can and should take in shepherding the adoption of new technology into the marketplace and provide valuable inputs, such as data sources, in achieving those ends.
Closer to home, the Financial Conduct Authority (FCA) are also doing their bit to facilitate RegTech and create standards for the industry. In 2014, they launched Project Innovate, with the aim of opening the doors for entrepreneurs who have “fresh ideas about how to deliver financial services.” In the three-year period since Project Innovate was established, approximately 1,000 firms contacted the innovation department, demonstrating clear interest from financial institutions.
While Project Innovate has been met with some criticism, most RegTechs agree there is value in what the regulator is trying to do and appreciate that the FCA is getting hundreds of requests to look at their technology.
Further to this, a number of RegTechs have benefited from being vetted by the regulator by using their sandbox testing environment, thus, getting the all-important stamp of approval to show their products to potential clients.
These examples demonstrate that when regulators facilitate conversations and knowledge sharing of RegTech, then it helps bring RegTech into financial institutions’ operations. Regulators want compliance, obviously, and RegTech helps financial institutions meet that requirement in a more cost-effective and thorough manner. Some RegTech solutions even assist regulators in streamlining their processes. It is clear that everyone – RegTech firms, financial institutions, and regulators – can benefit from the adoption of RegTech. It should not be feared, but embraced. We urge more carrots from regulators and fewer sticks to encourage RegTech.
Whilst regulators have not been without criticism – that they’re too slow, too risk-averse and too selective to promote RegTechs – we have highlighted that there are encouraging signs from regulators around the world. No doubt much more is needed and we look forward to seeing how regulators can facilitate RegTech in the future…