RegTech Intelligence

The RegTech domains

In our response to the FCA’s call for input on RegTech, we recommended framing the thinking via the RegTech domains to help enable the prioritisation of new technological solutions in the context of external regulatory circumstances.

As we have stressed before, RegTech is about the application of technology to solve a specific regulatory problem, not about the technology itself.  Any firm can throw money at vendors to make problems go away but, when the industry works together and applies technology to regulation in a smart and safe manner, it becomes RegTech: a new automated solution to compliance.

This is why we will be holding a panel* at our RegTech conference on 5 July to discuss the areas of regulation where RegTech can make a sizeable difference.

Here, we will review our approach to the matter in terms of collaborative achievability versus the imperative of getting the solution to market, as you can see in the chart below.  The aim of the panel is to generate discussion on what the industry – and the regulators – see as the priorities.  The real answer will be in the consensus.  First we will look at the domains towards the right of the spectrum.


Speed to market

Nick Cook, who plays a key role in the RegTech initiatives as Head of Data & Information Operations at the FCA, has indicated of the regulator’s approach as directing innovation where the outcome will be greatest.  “There are opportunities for regulated firms to take advantage of new technologies.  Going forward we hope to nudge the industry to innovate in areas that will provide better regulatory outcomes for them as regulated firms, for us as the regulator and ultimately for the benefit of the consumers we regulate for”, he said.

At our RegTech roundtable in March, participants generally agreed that reporting requirements caused the most difficulties.  Trade and transaction reporting rules require large financial institutions to track millions of products and thousands of trading systems, resulting in a system with billions of reports that are a challenge to manage well.  In a similar way, prudential, statistical and systemic risk reporting are also big tasks.

Participants suggested common reference models as an obvious answer to addressing these reporting requirements (e.g., MiFID II, EMIR art. 9, SFTR) … especially given the additional time provided by the MiFID II delay, which is allowing firms to overhaul their legacy processes in favour of more robust systems – something we have already witnessed happening.

With the end goal being harmonisation, collaboration will be essential in building common reference models in the regulatory reporting domain.  A committee could help curate a common canonical data model to accelerate the adoption of solutions across the sector (e.g., open source data validation rules).  This could link regulations to the wider legislative initiatives and external standards that parent them, and could perform sophisticated gap analysis to make regulation simpler and more effective.  The primary benefit of this approach would be for investment firms who would no longer need to rely on multiple vendors for their reporting strategy.

Investor protection and conduct issues were also frequently mentioned at the roundtable as RegTech domains that need addressing.  Trade surveillance has now become the biggest IT spend for financial institutions, so there is little questioning why a solution is sought after.

There is an abundance of RegTech products which attempt to alleviate the burden of conduct-related obligations.  Surveillance platforms, monitoring systems and automated systems for updating intelligence and records are now increasingly increasing firms’ ability to monitor conduct.  Advances in AI are enabling computers to monitor activity across multiple databases using data mining, pattern recognition and natural language processing to mimic the way the human brain works.  Additionally, the use of big data has enabled the checking of a wide variety of data sources to track potential market abuse.  Such tools not only lead to a potential decrease in bad conduct through greater and more accurate policing, but will ultimately lead to greater cost efficiency.

Likewise, advances in cloud technology and its increased approval by regulators are facilitating cloud migration and reinforcing its capacity to ensure compliance.  Cloud telephony solutions offer seamless communications and the flexibility to archive calls, helping with MiFID II conduct obligations which expand the phone recording requirement to anyone involved in the trading process.

The fact that many requirements use established technologies, such as big data, cloud technology and, to an extent, AI (at least to the level it can achieve pattern recognition) makes them more likely to provide immediate solutions in the areas of regulatory strain that need them the most.

Agreement that there is an urgency to bring solutions to market is why we will be holding roundtables on both trading and conduct obligations during our conference, to explore answers to these issues further and decide on the next steps.  As well as this, the excitement around RegTech’s potential in other areas offers many opportunities for discussion about these emerging tools.

Collaborative achievability

The application of distributed ledgers and smart contracts to clearing and settlement rules will systemically rely on collaboration, given that these networks are grounded in trust.

The question of collaboration in the development of blockchain technologies raises an interesting debate.  Both private and public initiatives are underway, but this article argues that the closed-architecture innovation characterised by many private initiatives is unlikely to be transformative for the financial sector in itself.  It goes on to say that those working on public blockchain applications in the US, likely to be groups of smaller organisations, are held back by regulations requiring them to adhere to normal payments requirements.  They cite the FCA’s regulatory sandbox as a successful method of protecting innovators from the regulations that they are unintentionally captured by – a useful reminder of the essential role of the regulators in driving RegTech growth.

Blockchain has the potential to address both shadow banking risks and enable real time surveillance.  These are big issues but their resolution will require a lot of work to be effective.  ESMA’s recent discussion paper on DLT brings to the fore several hurdles that blockchain faces, including the required scalability to make such a trust-based distributed ledger network function effectively.

The mountain of work required is testament to the reality that blockchain is unlikely to be part of the immediate future – at least in RegTech terms.  It remains very much in the proof of concept stage and, therefore, is not located towards in the top right sector of our achievability-urgency framework.

Besides, the establishment of standards on incumbent technologies will undoubtedly aid the development of more emergent technologies, which will also rely on standards before interoperability issues prevail.  Let’s think about it – the main barriers to blockchain revolve around interoperability, trust (collaboration) and access to data.  These are all essential in building the reference models required to mainstream big data and AI solutions.  Collaborative efforts to get the immediate solutions right will inevitably lay the foundations for the development of emerging technologies in the long term.


In our response to the call for input on RegTech, JWG recommended the establishment of an industry committee to prioritise the key RegTech domains and their requirements, and an implementation steering group within each domain.

Concentrating on RegTech from a domains perspective will help the conversation by pairing the right technology with the right challenges at the right time.  These domains will also bring in the smaller, agile and innovative companies and larger well-established firms who could work together and use their complementary skills to identify specific solutions.

At the conference panel on 5 July, we hope to encourage such progressive outcomes from a vibrant conversation on the collaborative priorities to scale up RegTech solutions.  Confirmed speakers so far include Ayaz Haji (Head of MiFID 2 Technical Architecture and Data Strategy, Goldman Sachs), Paul North (Head of Product Management Europe, BNY Mellon), Andrew Rourke (Director, Head of CIB Data Management, RBS) and Beverley Aspeling (MD, Regulatory Risk and Strategy, Credit Suisse Group).

Be sure to sign up quickly to hear the opinions of these thought leaders and contribute your two cents to the direction the industry ought to be heading in.

*July conference panel

11:25 Panel: The RegTech domains – Prioritising ‘compliant’ RegTech solutions

  • How to get the modelling and reference data right
  • Why is it important to build the data standards before the blockchain?
  • Who are the key stakeholders and where can the leadership come from?

Click here to find out more about our industry-acclaimed MiFID implementation training, which we are running on 6 July following the conference.

To promote global dialogue on how to deliver regulatory change JWG post hundreds of focused articles a year to thousands of subscribers. Get involved and join the mail list.

By hitting the subscribe button you agree to our Privacy Policy