Accelerating Financial Innovation Through RegTech: A New Wave of FinTech

Accelerating Financial Innovation Through RegTech: A New Wave of FinTech

Shilpa Narang (Guru Gobind Singh Indraprastha University, Delhi, India)
DOI: 10.4018/978-1-7998-4390-0.ch004
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The buzz word ‘RegTech' is on the rise. A financial service regulation has inflated at an astounding rate since the financial crisis and, therefore, has the price tag of regulatory compliance. Many start-ups have begun to apply digital technological knowledge including APIs, AI, RPAs, and many more to these immediate, numerous, and burdensome tasks to meet the terms and regulations, hence the emergence of RegTech. This study examines the implications for financial institutions and regulation particularly when technology poses a confront to the global banking and regulatory system. It attempts to examine the characteristics and applications of RegTech in the world of regulatory compliance. It also illustrates a model to define the transformation of present workload to proposed workload of regulatory compliance with an application of RegTech.
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“RegTech is redefining the future for financial services. New digitization technologies are changing the way risk management and regulatory compliance requirements are addressed and delivered. However, for this to happen, collaboration across a number of actors is crucial, particularly across the banks, the regulators, the RegTech firms, and the large consultancies.” -Subas Roy, Partner , RegTech, Digital risk & compliance

The word “RegTech” was proposed in 2015 by the Financial Conduct Authority, which portrayed it as a sub-set of FinTech that relies on technologies that may support the delivery of regulatory requirements more ingeniously and productively than accessible capabilities.

RegTech takes on a selection of meanings depending on the individuals defining it. Usually, the portmanteau refers to any company rising agile technology that can help financial companies to enhance comply with regulations. In the period of 2008 financial crisis, financial regulators wanted to make sure the industry would not face the same troubles again. New system was put in place to develop risk controls, maintain capital and create a more transparent financial sector.

With an enlarged focus on managing risk and complying with stricter rules, the financial industry needed to find new ways to adjust. On top of this, knowledge was advancing; significance much more was possible. The growth of FinTech has stretched in three stages. The first and foremost stage is distinguished as FinTech 1.0. A period that stretches from the laying of the transatlantic cable to the development of the global telex association and which captures long-standing connections between technology and finance.

The second stage, FinTech 2.0, encompasses the pre-GFC time underpinned by the digitization of customary financial services, opening with the first ATM and culminating in e-banking. Since the GFC is rapidly developing and the production of startups and IT firms is categorized with financial services. The era of FinTech 3.0, the speedy evolution of FinTech weight a similar evolution of RegTech. “RegTech”, has been derived from ‘regulatory’ and ‘technology’, depicts the usage of technology, primarily information technology (IT), in the scaffold of regulatory scrutinizing, reporting and thus, compliance too.

To elaborate, the development of RegTech is defined in a chain of stages. RegTech 1.0, a pre-2008 replica, was mainly determined by industry but insisted a partnership with regulators that focused on an over-reliance on a quantitative internal risk organization structures. This stage was pursued by RegTech 2.0, an epoch that is commencing to be encouraged by financial advertise participants and regulators who are using technological expertise to progress regulatory compliance and renovate its component processes.


Conceptual View: Fintech And Regtech

Explaining FinTech

FinTech is not a new conception. The term “FinTech” can be traced to the early 1990s and now refers to a quickly developing evolutionary process across financial services. This development only began to attract the attention of regulators, industry participants, consumers, and academics in 2014 (Anagnostopoulos 2018).


Explaining Regtech

Evolution and Significance of RegTech

RegTech refers to technological solutions that modernize and improve regulatory processes. Like FinTech, RegTech has stretched in three stages. The initial stage, RegTech 1.0, was directed by massive financial institutions that embraced know-how into their internal methods to fight against rising compliance fees and complications, as characterized in the Base principal Accord.

The second stage, RegTech 2.0, has been determined by new post-GFC regulatory necessities and the costs to the financial industry of their achievement (Barberies 2017). At the same time, regulators are looking for mirror the increasingly digitized nature of the markets they observe and to improve their capacity to analyze the escalating volumes of data generated by post-GFC exposure obligations.

In the future, RegTech will display its furthermost prospective in the third stage of its growth RegTech 3.0, in which knowledge will help us reconceptualize finance and its guideline to construct a better financial system (Beall, 2019). Eventually, it is quarreled that the increasingly data centric environment of both FinTech and RegTech has the latent to prompt a shift from a KYC example to a KYD mindset. Instead of being seen as a growing subcategory of FinTech, RegTech should be viewed as a detach phenomenon.

Key Terms in this Chapter

Collaborative Consumption: A financial model based on the allocation: exchange, and renting of services. The allocation economy or joint economy can be seen in platforms like Airbnb or Kickstarter and is growing in FINTECH solutions via solutions like peer-to-peer lending.

Bitcoin: The majority accepted crypto currency, frequently deemed the initial of its type. The unlock basis of software comes with an indefinable and strange history.

Crypto Currency: A digital money using cryptography for guideline and safety. It’s a decentralized scheme, meaning no essential unit exists to manage the processes. In its place, it uses a block chain. There are quite a few dissimilar kinds of crypto currency, together with Bitcoin, Ethereum, and Ripple.

Block Chain: Where crypto currency dealings get recorded. It operates like a public ledger where in order, once entered, can’t be distorted. Block chain technology also has quite a lot of non-crypto currency applications together with smart contracts and the copy of digital assets.

API: Application programming interface (API) represents the functionalities of a positive program. These are central because they allow other programmers to use machinery of existing software: allowing for quicker and more consistent software development - a main element of the FINTECH group.

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