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Regulatory technology, in short regtech, is a new technology that uses information technology to enhance regulatory processes. With its main application in the Financial sector, it is expanding into any regulated business with a particular appeal for the Consumer Goods Industry. Often regarded as a subcategory under FinTech, RegTech puts a particular emphasis on regulatory monitoring, reporting and compliance and is thus benefiting the finance industry. The objective of RegTech is to enhance transparency as well as consistency and to standardize regulatory processes, to deliver sound interpretations of ambiguous regulations and thus to provide higher levels of quality at lower cost. Oftentimes RegTech companies use the cloud through software-as-a-service.
RegTech to date has been focused on the digitization of manual reporting and compliance processes, for example in the context of Know your customer requirements. This offers significant cost savings to the financial services industry and regulators. However, a 2016 academic paper suggested that the potential of RegTech is far greater stating that “it has the potential to enable close to a real-time and proportionate regulatory regime that identifies and addresses risk while also facilitating far more efficient regulatory compliance”. Effective regulatory technology deals with risk quickly and in strict compliance with national and international regulations such as: The Patriot Act, The Bank Secrecy Act, FATF recommendations and EU Anti-Money Laundering Directives.
The report goes on to suggest that RegTech’s transformative potential will only be fully captured by a new and different regulatory framework situated at the nexus of data and digital identity. The developments in FinTech, the tremendous changes in emerging markets, and the recent pro-active stance of regulators (for instance with the development of regulatory sandboxes), may potentially combine to facilitate a transition from one regulatory model to another.
ATTRIBUTION: Wikipedia contributors. “Regulatory technology.” Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 29 Feb. 2020. Web. 19 Mar. 2020.