Tag: RegTech

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ASIC provides responses to industry feedback on its current and future approaches to RegTech
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RegTech: A U.S. regulator’s view on artificial intelligence in risk assessment
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ASIC proposes next steps on RegTech
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European Securities and Markets Authority identifies RegTech risks
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K&L Gates hosts FinTech event in Perth
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FCA outlines FinTech and RegTech priorities for year ahead
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RegTech Association launches in Australia
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FinTech in Canada – Towards Leading the Global Financial Technology Transition
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Regtech Earns a Name
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FCA Feedback Statement on RegTech

ASIC provides responses to industry feedback on its current and future approaches to RegTech

By Michelle Chasser and Felix Charlesworth

On 15 September 2017, ASIC released its responses to industry feedback on its consultation Report 523 (REP 523). As mentioned in an earlier blog, REP 523 sets out the structure and framework for ASIC’s ‘Innovation Hub’ as well as its current and future approach to regulatory technology (RegTech).

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RegTech: A U.S. regulator’s view on artificial intelligence in risk assessment

By C. Todd Gibson and Evan Glover

On 21 June at the OpRisk North America 2017 conference in New York, Scott W. Bauguess, Acting Director and Acting Chief Economist of the U.S. Securities and Exchange Commission’s (“SEC”) Division of Economic and Risk Analysis (“DERA”) gave a keynote speech on the use of artificial intelligence by regulators.  A transcript of the speech can be found here.  Bauguess provided some interesting background on the utility and use of big data and machine learning at the SEC to identify potential misconduct by market participants and investment managers, and the emerging use of artificial intelligence.

Bauguess’ speech discussed the SEC’s use of AI in its regulatory framework, initially discussing machine learning.  The SEC currently applies topic modeling methods, such as Latent Dilchlet Allocation (“LDA”).  LDA reviews text-based documents (e.g., registration disclosures) and reports on where, and to what extent, particular words appear in each document.  This occurs either by: analyzing the probability of words across documents, and within documents, to define the topics they represent (“unsupervised learning”); or incorporating human judgement and direction into the programming of the machine’s algorithms (“supervised learning”).

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ASIC proposes next steps on RegTech

By Jim Bulling and Michelle Chasser

ASIC is ramping up its focus on regulatory technology (RegTech).

On Friday 26 May 2017, ASIC released its Report 523 titled “ASIC’s Innovation Hub and our approach to regulatory technology”. This report gives an update on the work of ASIC’s Innovation Hub and outlines ASIC’s current and proposed future approach to RegTech.

The report defines RegTech as the use of new technologies to solve regulatory and compliance requirements more effectively and efficiently. These technologies could include use of artificial intelligence, natural language processing, data reporting, regulatory codification and big data analysis technologies.

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European Securities and Markets Authority identifies RegTech risks

By Jonathan Lawrence

A senior official at the European Securities and Markets Authority (ESMA) has given a speech on “The Adoption of RegTech within the Financial Services”. Patrick Armstrong is the Senior Risk Analysis Officer, Innovation and Products Team at ESMA and gave the speech on 16 May at a RegTech conference in London.

Mr Armstrong identified three risks of RegTech:

  1. Disintermediation – when collaborating with RegTech firms, financial institutions cannot delegate responsibility for their compliance and risk management activities. Instead, the ultimate responsibility remains with the regulated financial institution. While greater specialisation brings efficiency gains, it means there is a risk that full oversight does extend all the way down the value chain. Additionally, while established financial firms have experienced compliance staff, this may not be true of all new entrants in the sector, who may be unaware of exactly how far their responsibility extends.
  2. Digital Security – a major concern across sectors, and of course security needs are especially acute in the financial sector. One can argue that the migration to a digital centralized data infrastructure increases a firm’s vulnerability to attack, theft and fraud. We must develop mind sets in which client data is viewed with the same level of security as that given to money placed in secure vaults. To achieve this, we may need to promote increased real-time collaboration between financial sector institutions on cyber security matters.
  3. Migration Risk – the differential adoption of new technology. Failure on the part of market participants to adapt to the newer digitalized infrastructure presents business risk that may separate winners from losers in the coming years. As well, failure to adapt to a more automated regulatory compliance process may leave participants with platforms ill-suited for the current regulatory framework. For their part, regulators must migrate to a digital based supervisory process, only then can they cope with the volume of data they will soon receive.

Just as FinTech is introducing changes to the way in which market participants offer their services, so too Mr Armstrong saw that RegTech may alter the way in which financial institutions and regulators comply and supervise. Implemented correctly and monitored effectively, Mr Armstrong recognised that RegTech has the potential to improve a financial institution’s ability to meet regulatory demands in a cost efficient manner. Similarly, as a regulator, ESMA is constantly looking for tools to improve the way in which it can better supervise market behaviour. Provided both parties manage this process of change suitably, he thought they can work towards putting in place an effective, fair and transparent financial services sector that stimulates growth and benefits society as a whole.

K&L Gates hosts FinTech event in Perth

By Adam Levine and Ben Kiernan-Green

On 19 April 2017 the K&L Gates Perth office hosted a Perth FinTech Meetup, chaired by ASIC Commissioner John Price. The event provided clients, lawyers and members of the FinTech and crowd-funding communities an opportunity to hear about ASIC’s involvement and commitment to the development of the ASIC Innovation Hub, ASIC’s regulatory sandbox and RegTech.

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FCA outlines FinTech and RegTech priorities for year ahead

By Jonathan Lawrence

The UK Financial Conduct Authority (FCA) recently issued its Business Plan 2017/18 that deals with its FinTech and RegTech priorities for the year ahead. The FCA wants to engage more with regional and Scottish FinTech hubs. In its risk outlook, the FCA talks about more complex value chains that utilise FinTech posing a risk to consumer protection and market integrity. The issues associated with the oversight and controls of increasingly complex chains of third party relationships are reflected in the FCA’s priorities. The technological resilience of incumbent firms will also continue to be an area of focus because of the risk of disruption to financial markets. The FCA states that FinTech firms may not fully understand the scope of regulation and its impact on their business model. This could lead to cases of non-compliance with FCA rules, which could pose risks to consumer protection and market integrity. In addition, the FCA fears that greater reliance on technology poses increased operational risk, and risks to market integrity. The FCA believes that FinTech business models shift risk from financial firms to consumers without consumers fully understanding the implications or having adequate safeguards.

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RegTech Association launches in Australia

By Claire de Koeyer and Jim Bulling

Launching in March 2017 the RegTech Association is focused on “promoting the achievements, partnerships, collaborations, incubations and seeding of RegTech in Australia” through advocating, educating and supporting businesses in the sector. This is likely to involve facilitating engagement with industry stakeholders, advancing the use of technology and improving regulatory compliance outcomes.

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FinTech in Canada – Towards Leading the Global Financial Technology Transition

By Robert Zinn and Jim Bulling

The Digital Finance Institute is a prestigious Canadian-based think tank for FinTech established in 2013 with a mandate to address the balance of innovation and regulation; support initiatives for financial inclusion; and advocate for diversity in FinTech. The Digital Finance Institute also promotes FinTech in Canada through conferences and international alliances; the creation of Canada’s national FinTech Awards; the FinTech Cup, the new university FinTech startup challenge and by preparing research papers on FinTech.

Robert Zinn and Jim Bulling contributed insight and content to the U.S. and Australian FinTech ecyosystems.

To read this publication, click here.

Regtech Earns a Name

By Susan Altman

Technology solutions for bank regulatory requirements have been around for decades, but their soaring popularity has led to them earning their own nickname within the fintech world: they’re now “regtech” solutions, according to a new report issued by Bain & Co. in the American Banker.  Regtech products are designed to benefit banks’ efforts to comply with growing regulatory burdens and improve internal governance controls.  Bain estimates that governance, risk and compliance costs account for 15% to 20% of the total “run the bank” cost base of most major banks.  It’s no small wonder that banks are struggling to devise a robust and efficient approach to compliance and are outsourcing the implementation and hosting of advanced compliance tools with nimble regtech-focused outside vendors.  Bain has identified more than 80 emerging regtechs that extract and structure data, integrate data from banks’ proprietary systems, third-party data providers and public sources, and crunch the data in automated, scalable ways.  Artificial intelligence, or machine learning, continuously improves the quality, precision and reliability of the insights that emerge.

Bain predicts that banks’ relationships with regtechs will be significantly shaped by regulators, in the form of governance, risk and compliance standards and approval of proposed solutions. As new requirements go into effect, banks will need to continuously assess the level of functionality, complexity and efficiency of current technology, systems and data.  And did we mention, this all has to be done in a very secure environment?

FCA Feedback Statement on RegTech

By Jonathan Lawrence

The UK Financial Conduct Authority defines 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”. In November 2015, the FCA asked for views on how it should progress and prioritise its RegTech work. It received more than 350 responses from established financial services firms, technology suppliers and FinTech start-ups and the FCA also convened roundtable meetings. The feedback statement was released on 20 July.

The main themes that emerged concerned technology that:

  • allows more efficient methods of sharing information
  • drives efficiencies by closing the gap between intention and interpretation
  • simplifies data, allows better decision making and the creation of adaptive automation
  • allows regulation and compliance processes to be looked at differently

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