RegTech: Bringing Back Argus

By Sarah Biller | Co-Founder, FinTech Sandbox, Chief Data Officer, Distilled Analytics

Easier. Swifter. Streamlined. These are not the adverbs we often associate with regulatory matters in Financial Services; however, as the capabilities of emerging technologies are harnessed to address the ever growing and diverse demands of global regulators it is not uncommon to see these sentiments in the same sentence. RegTech holds the same promise of removing friction in the system as we have seen with the rise of new techniques to make payments, lend money and identify latent risk factors.

RegTech is an undeniably exciting development in a space long reserved for mythical individuals no less all seeing than the creature Argus. According to Greek legend, Argus was a one hundred eyed giant who initially delivered a great service. He could allegedly look every way and never slept.

Argus is an excellent metaphor for the opportunities of RegTech. In a post global credit crisis environment and the passage of Dodd Frank, the creation of countless governing Council’s, consumer protection acts, stress tests and a myriad of new reporting requirements, large financial services firms routinely report spending upwards of a $1 billion a year (if not more) addressing regulatory and compliance requirements. Some have said that only the evolving demands of customers outpaces the creation of new financial services regulations. A technical solution that is all-seeing would be a relief.

But, what does “RegTech” really mean? Perhaps more importantly, what could hamper the progress underway to provide the financial services sector with more “eyes” on risks? These questions were expressed at Money 2020 in Copenhagen, and are the ones we asked ourselves as we headed into the last Boston FinTech meet-up at PwC. With an audience of over 200 people, it comes as no surprise the discussion between the panel and the audience was lively and provocative.

The United Kingdom’s Financial Conduct Authority (FCA) describes RegTech as the “adoption of new technologies to facilitate the delivery of regulatory requirements.” Bloomberg reporters conclude RegTech is the deployment of technologies to make “it easier, faster, more complete and more efficient [for financial services firms] to monitor compliance and regulatory obligations”. PwC suggested RegTech is defined as the solutions which leverage emerging technologies to address risk and regulatory challenges. Whilst all RegTechs leverage emerging technologies to some degree, there is a data and talent issue to fully harness.”.

At FinTech Sandbox, we have had the opportunity to advise on the creation of a Regulatory Sandbox in the United Kingdom. The U.K. team concluded, “Industry Sandboxes offer new opportunities for the financial services sector to accelerate the use of shared knowledge, data and technology in the process of developing innovative solutions for customers.”

Even with these conclusions and our efforts, we cannot yet answer questions of adoption hurdles in RegTech in individual firms. Contrary to the advances we’ve realized from smart phones and other technologies in financial services, the experts who spoke to the Boston FinTech community noted regulation processes were easier to manage pre-digitization of the industry. Just as the availability of large data sets and technologies to mine this data for investment insights has become commonplace in professional’s tool kits, so has the expectation of regulators that firms are deploying similar tools to manage their risk and compliance processes.

Most firms have not invested in technology, though. Instead, they have spent years building manual processes and hiring armies of people to meet the regulators expectations. They have attempted to establish a culture of controls and education. It is possible that this sunk cost will stand in the way of technical adoption. Others thought the procurement process in large firms was an even larger impediment to the adoption of RegTech than the entropy caused by manual approaches.

The good news is that there are lots of lessons from the adoption curve in other industries as well as from ancient myths we can apply to financial services. To close out the story of Argus it is important to know that Zeus had him killed, only to find that this decision led to the creation new torments amongst the Gods.

Not surprisingly, the irony of Argus’ demise is all too familiar to individuals trying to introduce new technologies to financial services firms. Interestingly, the hopeful view from our panelists was that the trajectory of RegTech will follow a similar curve as the adoption of mobile apps — where specialization rather than wholesale platform plays rule. If this theory holds, we’ll see lots more RegTech innovation and a profound opportunity to mitigate risks before they escalate.

If you are interested in learning more about the latest trends within RegTech as this exciting space evolves, click here to watch a webcast hosted by PwC RegTech Specialists or join us as we seek to provide an ongoing dialogue with start-ups and incumbents tackling these important issues. We’ll start by hosting a series of discussions with more industry experts during 
Boston FinTech Week.

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