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RegTech, the future of financial regulation | Bitcoin Lawyer

RegTech, the future of financial regulation | Bitcoin Lawyer

The recent report by the UK Government Chief Scientific Adviser on Fin Tech Futures sets out the way in which the UK can cement it'sworld-leading position in FinTech and recommends ways in which the sciences can contribute by building on the work of HM Treasury in this field.

Recognising that FinTech will disrupt existing business models and create huge opportunities for the development of better businessesand consumer services, the report also notes that there is a potential for FinTech to offer new methods for fraud and exploitation.One recommentation of particular interest is that the future of Financial Regulation leads to a new generation of tools (in particular automated reporting and advanced analytics) that is designed specifically to assist in the regulatory process that the report names as 'RegTech'.

In a recent report by the UK Government Chief Scientific Officer entitled  'FinTech Futures: The UK as a World Leader in Financial Technologies', the use of a range of technologies is discussed for use in this new sector, to be known as RegTech. It could involve the better use of technology to support people processes including real-time transaction analysis, online registration, standard data formats, standard (risk weighted) asset indices, automated reporting, open-source compliance systems, and big data analytics.

The call for new forms of regulation are based on a belief that the Regulators have an impossible task keeping up with the advances in technology that are increasingly being used by powerful financial institutions. One estimate is that over 60% of the trades NASDAQ were the result of high speed trading or automated platforms as most hedge funds recognise that the only way to maintain an 'edge' over the opposition is to hire new maths geniuses known as 'quants' to write new gaming software programmes. What chance to the regulators have, given the pace of change which places the price of hiring these new graduates out of the reach of the cash strapped authorities? 'If you cant beat em join em'  has to be the battle cry, to level the playing field by giving the Regulators the tools that they need to fight back on behalf of the clients who are in reality losing out in the majority of these trades, many of which are probably illegal on close inspection.

It is recognised that the demand for increased regulation could hinder the capacity of financial institutios to operate and innovate. Harmonising financial regulation across multiple jurisdictions and creating new automated reporting and analytics standards could improve the financial service industry's efficiency and reducing risk by;

  • Regulatory policy modelling using agent based modelling to simulate likely impacts before legislation is imposed.
  • Developing commom compliance tagging and reporting standards could assist sharing of information between regulators  and data sharing
  • Developing systemic risk tools
  • Harmonising national, european and global monitoring
  • Development of uniform compliance tools
  • Collaboration with FinTech to understand emerging technologies

The report proposes a fully integrated analytics infrastructure using:

  • Datatbase and streamed processing infrastructure proceses and 'big data' storage
  • Data mining analytics tools for enhanced decision taking
  • Visualisation tools
  • Computational platform that do away with the need for extensive expertise in programming 

The use of Blockchain is clearly also criticial to the developement of this RegTech suite of tools, as it is transparent, quick (private blockchains are capable of conducting hundreds of thousands of transactions per second) and secure.

It is clear that the authors believe that this proposal would be a major undertaking that needs to be driven by the UK academic community. It suggests the establishment of a Financial Data Research Facility, and collaboration between regulators, insitutions and FinTech companies, with the creation of regulator monitored 'sandboxes' for innovators to experiment with virtual environments or real people and a RegTech community ecosystem. This would bring signifiant economic value by reducing costs, improving transparency and trust and allow new business models to develop.

One of the main contributors to the report is Professor Philip Treleaven University College London who is the Director of Centre for Doctoral Training in Financial Computing and Analytics at UCL.

For any advice and assistance for issues like these please do call Jeremy on 0844 2722322 or submit a comment below. Jeremy will come back to you at the earliest convenience.

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