City of London Corporation, an organization which runs the London’s “Square Mile” financial district, in cooperation with the RegTech Associates, has undertaken research to understand and present to the market, the opportunities and challenges outcoming from effective use of RegTech technologies. Report published today, presents a set of recommendations and measures to further support the financial sector which shall serve as an effective tool to grow and thrive, “adding value to the broader financial services sector and the UK economy.”
City of London Corporation, an organization which runs the London’s “Square Mile” financial district, in cooperation with the RegTech Associates, has undertaken research to understand and present to the market, the opportunities and challenges outcoming from effective use of RegTech technologies. Report published today, presents a set of recommendations and measures to further support the financial sector which shall serve as an effective tool to grow and thrive, “adding value to the broader financial services sector and the UK economy.”
Policy Chair of the City of London Corporation indicated in her introductory statement (foreword):
The UK has long been recognized globally as a thought leader in financial regulation, so it is no surprise that both the Financial Conduct Authority and the Bank of England have been proactive in their approach to technology innovation.
Deep scrutiny of the financial sector in UK and its correlation as well as the use of regulation technology on a daily basis, was a main trigger for its authors. The reports is intended to be an opening point for the discussion and role of the technology in the financial sector, as Policy Chair stated:
RegTechs have a pivotal role to play in securing the future of RegTech and making it a cornerstone of the competitiveness of the UK financial sector.
Having in mind that the “Regulation is the cornerstone of a stable and sound financial services sector, and one which serves the interests of both consumers and investors” the need to introduce relevant technology measures in order to let the sector to be up to speed with the following changes:
- Regulatory
- Social
- Cultural
- Technological
seems to be one of the biggest challenges for the financial sector since its inception as we know it today.
The aim of this study, therefore, is to explore the UK RegTech industry and address the following core questions:
- What are the key barriers to innovation and adoption of RegTech?
- What best practices have been employed overseas to enhance competitiveness and support the RegTech industry?
- What impact has COVID-19 had on the UK RegTech industry?
- What policy and practical measures could be put in place to overcome the barriers to adoption and improve the long-term growth of RegTech.
RegTech definition
It is almost impossible to come up with a homogeneous and uniform definition that would be accepted by all market participants, but for the purposes of this report RegTech is defined as follows:
“the use of technology to help regulated firms meet their regulatory obligations”.
However it is worth mentioning that the term “RegTech” emerged from various sources, including
- Professor Phillip Treleaven from University College London,
- the UK Government Office for Science and
- the Financial Conduct Authority
Defining RegTech as a "sub-set of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities”.
Challenges
The report looks at the challenges and current state of the market for technology solutions to support the wider business, in this case the financial sector, in meeting compliance, reporting and due diligence obligations. Obstacles to overcome in reference to the Report described herein, include among others:
- Awareness
- Regulator Stance
- Scale
- Vision
- Representation
- Technology
- Standards
- Board Education
- Talent
- Finance
Obstacles which UK RegTech industry is about to face during the introductory phase are not narrowed to the list above mentioned. The list presents only he biggest challenges, grouped under relevant thematic categories.
The authors of the report highlight an issue that seems to have been overlooked when discussing the evolution of the RegTech market, particularly in the context of using artificial intelligence and machine learning technologies, namely human resources and proper talent selection.
AI only works when applied to the right use cases
(...)
AI is a major feature of many current RegTech projects, but it is only one of many technology areas that firms need to acquire expertise in. An opportunity exists to review the provision of technology training for financial services in general, and compliance technology in particular. In this way the specific end-to-end skills needed to navigate future projects can be incorporated in academic courses, apprenticeships, professional qualifications and work placements.
Paradigm shift
The authors argue that RegTech solutions represent a natural evolutionary paradigm shift and perception of financial institutions, particularly in banking. It is enough to go back to the last century, when banking at that time was based largely on the high formalism of the services provided, and contact with the representation of this institution was not possible without physical presence in the facility. Following this trope, the authors postulate that RegTech should be a natural step forward in terms of compliance with regulations relevant to the financial sector, and increasing its use tantamount to a change in the approach of supervisors themselves, who should work hand in hand with financial institutions to possibly optimize regulatory compliance using RegTech.
Nowadays, the use of RegTech is being held back by among others:
- long procurement cycles,
- slow decision making inside firms,
- lack of awareness about RegTech,
- constraints from existing technology, and
- lack of funds.
While designing a long-term strategy for a financial institution, it should be borne in mind that the use of RegTech may significantly decrease the cost of compliance. Actually the cost of compliance for Britain’s top five banks could be cut by at least 0.05%, or a combined 523 million pounds ($720.48 million), by greater use of RegTech according to the data presented in the Report.
“We are calling for more to be done to support the sector to grow and thrive, strengthening London’s global competitive offer and benefiting the wider UK economy,”
Catherine McGuinness, head of the City of London Corporation