Financial Supervisors and Regtech: Four Roles and Four Challenges

Abstract

RegTech, as the use of IT in compliance and supervision/regulation is now labeled, is a game-changer, given the revolutionary nature of current IT developments, such as data scraping tools, big data analysis techniques, and artificial intelligence or machine learning algorithms, which together allow for the aggregation and effective use of amounts of information that flesh-and-blood compliance officers and supervisors could never muster and master. In this short essay, I first scratch the surface of the “RegTech” label to identify four different uses of technology related to financial regulation, namely Operations RegTech, ComplianceTech, OversightTech, and PolicymakingTech. I next describe the four roles financial regulators can play with respect to RegTech: they can act as a developers/users (and sellers) of RegTech products; as buyers/users of products developed by others; as facilitators and coordinators of market developments; or as supervisors of RegTech firms. Finally, I set out the four main challenges financial regulators face in a FinTech/RegTech-dominated world, specifically with regard to their human resources, their internal governance, their cybersecurity risk, and their core operations goals of preventing, catching and punishing misbehaviour.

Keywords: Compliance, Cybersecurity, Financial Supervision, RegTech, FinTech, Securities Regulator, Supervisory Authorities

JEL Classification: G28, G38, K22, K23