In November the FCA issued a call for input on RegTech. JWG argued that new and proven tools can be employed but, to do so, the debate must be reframed as a ‘RegTech commons’ for the market to take off. We assembled top technologists from 14 leading firms with the FCA under Chatham house rule on 11 March 2016 to frame the thinking about the what it will take to successfully lay the foundations and build the domains as summarised below.
Definition of RegTech
- Size. The UK RegTech market is the world’s largest and, at 0.7% of GDP, offers billions for those that streamline front, middle and back-office business models right.
- Scope. The application of technology to solve a specific regulatory problem, not about the technology itself
- Impact. In the way that FinTech disrupts traditional services delivered by banks, RegTech is disruptive to the banks existing operating model
Conditions for success
- Who. Having regulators at the table creates the conditions for effective dialogue across technical, operations, legal and compliance SMES
- Language. RegTech requires clear, common and agreed interpretations about who the actors are, and what obligations they need to fulfil (i.e., a domain model)
- When. Focusing on areas of current implementation (e.g. MiFID II, FRTB, AMLD IV) will make it easier to get the SMEs and funding required to get the solutions right
- Interoperable standards. RegTech is a way to rekindle industry guidance efforts (e.g., The Financial Services Authority sturdy breakwaters) that have been long abandoned
Step 1: Setting the foundations
- Digitise. The rules need to be machine-readable and enriched
- Make accessible. Develop an API to the 8,000+ page handbooks
- Consumable framework. As all actors need a ‘single version of the truth’, a robo-rulebook that provides a method for a firm to map rules to policies is required
Step 2: Build out the domains
- ‘RegTech commons’. We believe the commons are necessary to segment the dialogue by focusing on key regulatory problems that can be solved – and, in doing so, creating value
- Approach. Concentrating on the domains of solution for different applications of RegTech would help the conversation by pairing the right technology to the right challenges at the right time.
- Priorities. Generally agreed that reference models are required and that reporting (e.g., MiFID II, EMIR art. 9, SFTR) are good examples of ‘low hanging fruit’. Opinions differed somewhat by business model, but investor protection and conduct issues were frequently mentioned
- Timing. MiFID II delay is an opportunity to lower the cost of regulation by adopting this approach
We conclude that the next step is for JWG to host an industry-wide conference to explore the issues in greater depth, generate collaborative proposals, agree on the priorities and establish an action plan. You can find the agenda for our 5 July conference here.