Regulators turn to tech to improve regulatory landscape

Regulation Technology, or ‘RegTech’, is gaining ground as regulatory authorities look to ICT to enhance effectiveness and reduce costs

Tags: Accenture ( Arab Emirates
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Regulators turn to tech to improve regulatory landscape RegTech has potential to improve regulation and support innovation, says Pisanu.
By  Mark Sutton Published  April 22, 2018

Regulatory authorities should do more to utilize emerging technology to create more effective regulatory environments, according to a new report from Accenture. The use of technology for regulation – RegTech – can improve the regulatory environment and make it more effective, mitigate the risks and bring benefits of competitive advantage, Accenture says in the report ‘RegTech for Regulators’.

The report, which was released in collaboration with The World Government Summit, highlights that regulators can deploy new technology and process reengineering not just to enforce regulation more quickly, but also to support innovation and growth.

Regulators are under pressure to deliver regulation in a more cost effective fashion, to reduce the burden of government, the report notes. At the same time, authorities also need to react more quickly to developments in the market such as emerging business models like Air BnB or Uber, and to bring these under control. Regulators also need more accuracy in their operations and to provide certainty to the markets they oversee.

It is also well understood that the regulatory environment for a given sector has a direct impact on that sector’s ability to innovate and grow.

Accenture highlights the potential of a number of new technologies for regulations, including AI, automation, Big Data, cloud, smart contracts and Blockchain, along with new APIs and cryptography, to create regulatory solutions that can be more cost-effective, provide real time assessment and testing for compliance, enhance transparency, automate reporting processes and so on.

Better technology can also help regulators to progress from a rules-based model, where the focus is on compliance, through a principles-based model with a focus on desired outcomes, but where enforcement and implementation are unclear, to an insight-driven model, which can be real time and data-driven, with assured compliance.

Gianmario Pisanu, managing director and consulting lead for Accenture in the Middle East and Turkey, and one of the report’s authors commented: “The regulatory environment has a tremendous impact on a country’s ability to innovate and prosper. In the coming years, data and insights will be a catalyst for innovation and business growth and serve as the backbone of more effective and efficient regulatory systems.

“Regulators should consider moving away from the traditional debate between risk-based and principles-based regulation and leverage data to cut enforcement and compliance costs.”

Cost is the key issue for many regulators, and a key issue for RegTech is whether it can help regulators to meet their compliance goals at lower cost and with greater certainty, Pisanu added.

“This is the central purpose of the growth of RegTech solutions — to make compliance affordable. The field is currently dominated by start-ups, many of them led by people who have previously worked in the Financial Services and other industries and therefore clearly understand the pain points of businesses in this space. Many of these RegTech companies currently are focused on catching the low-hanging fruit, such as automation of document workflow, onboarding of customers, identity management etc. As the industry matures, and larger firms start engaging in this space (there are already signs that this is happening), the solutions will probably gain greater scale, scope and credibility,” he said.

The financial sector is leading in RegTech at present, with developments in FinTech adding to need for and the growth of regulatory technology.

Pisanu said that, in his opinion, Dubai Financial Services Authority (DFSA) is the best example of using RegTech for regulatory purposes in the region. DFSA is the regulator for the Dubai International Financial Centre (DIFC), and the authority is exploring the possibility of using RegTech to regulate the near 460 financial services firms present in DIFC, he noted. This includes the possibility of using analytics engines for analysing data to predict the likely future behaviour of firms and identify positive behaviour that can help firms develop.

“An integral element of this shift is the FinTech Hive at DIFC, which was launched in partnership with Accenture. Within this program, selected companies work closely with financial institutions and other stakeholders to create solutions that address the needs of the region, including those related to regulation,” he said. “Among the set of finalists are Starling Trust, a US-based start-up that helps financial services firms manage culture and conduct related risks, and Norbloc, a Sweden-based provider focused on financial regulatory applications built on distributed ledgers. Its KYC platform is probably the first globally legally approved KYC ecosystem allowing sharing of data validating stamps.”

The report identifies a clear roadmap that regulators can use to adopt RegTech in the near term:

• Initiate Open Engagement: The relationship between the regulator and the regulated must undergo a transition to become more cooperative, rather than adversarial. There is potential to work together with governments, technology startups, academia, technology service providers and industry associations to understand how technology is evolving, what it means for regulators, and how its adoption can be accelerated.

• Orchestrate Innovative Ecosystems: Creating the enabling environment requires regulators to work with ecosystem stakeholders and invest in digital technologies. Helping regulators in this journey are RegTech initiatives that work with financial authorities in select markets to strengthen and accelerate innovative capabilities.

• Test Potential Solutions: Regulators should play a catalytic role in the development and adoption of RegTech solutions. There is merit in starting small by testing potential technologies, tools and solutions in a controlled regulatory sandbox environment, which allows regulators to engage entrepreneurs more quickly and at a lower cost.

• Transform Operations: The regulator of the future will be an analytics-driven organisation with data scientists, behavioral scientists and technology specialists playing a vital role. Legacy systems will have to be replaced by more agile and cloud-first platforms. This will also mean embedding the voice of the customer as well as the regulated entities into the regulatory process and driving technological deployment to break organizational boundaries restricting the free flow of talent and ideas.

In the longer term, the report suggests that regulators look at ‘Regulation as a Platform’, which is defined as a holistic approach in which regulators collaborate with businesses, government entities and citizens to drive innovation and improve compliance outcomes. Made possible through capabilities such as machine learning and analytics, the platform makes it easier for business and government to understand and work with regulation.

Regulation-as-a-Platform can be a catalyst for the creation of innovative advisory applications. One example is a Smart Advisor solution for regulators and business organisations, developed by Accenture Labs. The solution leverages technology tools — such as conversational agents, predictive monitoring, sentiment analysis and social risk analysis — to help officials at a regulatory agency or a business organization make better decisions leading to improved outcomes for all stakeholders.

Pisanu said that more regulators are still trying to understand the potential of RegTech, but there are leaders in Regulation-as-a-Platform emerging. Australia’s data innovation group, Data 61, is seeking to maximize the value of public data for all citizens by giving them open access to legislation through public APIs. The goal is to facilitate the navigation process, he noted.

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