BIS and the Future of RegTech

Last month Benoît Cœuré, head of the innovation hub for the Bank of International Settlements, gave an important speech on RegTech and SupTech.

The speech highlighted the value that regulatory bodies are placing on technology as well as many of the obstacles which still stand in the way of wider adoption of said technology.

“The Covid-19 pandemic has also accelerated trends in digital innovation that were already under way. For example, current developments bring digital payments to the fore and underscore the importance of resilient and accessible central bank-operated payment infrastructures that need to withstand a large range of shocks, including pandemics and cyber attacks. And expanded use of digital payments can, in turn, fuel a rise in digital lending as companies accumulate consumer data and enhance credit analytics.”

The lockdown has pushed digital innovation into overdrive. The move to remote working and complex regulatory challenges make this, in the words of the FCA, a ‘watershed moment’ for RegTech. Moves by regulators to develop their own tech capabilities have become even more urgent.

Even so, challenges remain across the industry, which prevent the speedy adoption of some technologies. These include what Cœuré called a “black box problem”, in that technologies such as artificial intelligence and machine learning are developing faster than the industry’s understanding.

If potential buyers of technologies do not fully understand them this not only creates a barrier to adoption, but also increases the risks of implementation. In the UK we’ve already seen with the GCSE & A-level exams the dangers of having blind faith in an algorithm. With AI technology making inroads across the financial industry, institutions are placing a huge amount of trust in technologies they may not fully understand.

Equally, Cœuré said, licensing models around the world often predate the rise of RegTech and were not designed for the technologies they are now attempting to govern.

Finally, regulators are challenged in finding talent:

“The demand for data scientists and engineers is higher than supply and continues to grow… for supervisory authorities in particular, competing with the private sector and tech firms to attract them, is sometimes not feasible.”

This creates a clear risk that regulators are being left behind without the human capital required to help them adopt new technology or fully understand how to regulate it.

RegTech can be called an emerging trend. As such, finding expert engineers with the capabilities required to implement digital transformation projects can be challenging. The private sector is hungry for talent and is headhunting every skilled engineer they can find.

Regulators, therefore, run the risk of being left behind without the human capital required to help them adopt new technology or fully understand how to regulate it.

The way forward

To move forward, Cœuré argues, regulators and supervisors need to build trusted platforms of collaboration. He highlighted BIS’s partnership with the Monetary Authority of Singapore and the ASEAN Financial Innovation Network:

“the world’s first cross-border, open architecture API marketplace and sandbox platform in which participants can integrate and test solutions with each other via a cloud-based architecture.”

Through APIX, financial institutions and FinTech firms would be able to discover each other on a ‘curated global marketplace’ where they can collaboratively design experiments and deploy innovations rapidly for a lower cost. Collaborations such as this, Cœuré hopes, could pave the way towards adapting to new ways of working in the post COVID-19 world. It will equip firms to cope with the “new normal” and enable their ability to harness technology to become more effective.

“Technology will be at the front and centre as we move into this new world. I therefore take this opportunity to encourage you to consider what impetus and changes are needed so that we can make that shift towards becoming the supervisors of the future.”

At Waymark we find evidence of all these sentiments in our interactions with current and potential users of our platform, particularly as we are one of the few RegTech businesses that is actively working with both government, regulators, and financial institutions. Our solutions are helping government agencies, legal and financial institutions make the shift that Benoit Cœuré is calling for, and we welcome his intervention.

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