FinTech, RegTech, and the Reconceptualization of Financial Regulation

Abstract: Regulatory change and technological developments following the 2008 Global Financial Crisis are changing the nature of financial markets, services, and institutions. At the juncture of these phenomena lies regulatory technology or “RegTech”—the use of technology, particularly information technology, in the context of regulatory monitoring, reporting, and compliance. Regulating rapidly transforming financial systems requires increasing the use of and reliance on RegTech. Whilst the principal regulatory objectives (e.g., financial stability, prudential safety and soundness, consumer protection and market integrity, and market competition and development) remain, their means of application are increasingly inadequate. RegTech developments are leading towards a paradigm shift necessitating the reconceptualization of financial regulation. RegTech to date has focused on the digitization of manual reporting and compliance processes. This offers tremendous cost savings to the financial services industry and regulators. However, the potential of RegTech is far greater – it has the potential to enable a nearly real-time and proportionate regulatory regime that identifies and addresses risk while facilitating more efficient regulatory compliance. We argue that the transformative nature of technology will only be captured by a new approach at the nexus of data, digital identity, and regulation. This paper seeks to expose the inadequacy of digitizing analogue processes in a digital financial world, sets the foundation for a practical understanding of RegTech, and proposes sequenced reforms that could benefit regulators, industry, and entrepreneurs in the financial sector and other industries