What is “RegTech” and how is the FCA encouraging new regulatory technologies?

Written on 30 Nov 2015

In the 2015 Summer Budget, the UK government announced that “the FCA, working with the PRA, will …identify ways to support the adoption of new technologies to facilitate the delivery of regulatory requirements – so-called ‘RegTech’ “.

The Financial Conduct Authority has now published a Call for Input to seek broader views on how, as a regulator, it should support the development and adoption of RegTech.

Supporting innovation to deliver regulatory compliance and reporting 

The FCA has already identified some areas of interest and emerging
themes that it wants to explore further in the RegTech, such as:

  • the use of technology accelerators to encourage, foster and fund innovation in delivering regulatory compliance and reporting;
  • real-time and system embedded compliance/risk evaluation tools;
  • using big data techniques to streamline and reduce the costs of providing data to regulators;
  • online visualisation and robo-advice tools;
  • software integration tools to reduce manual re-keying of data; and
  • the ability of cloud technology to provide flexible and potentially cheaper alternatives to traditional systems. 

RegTech, FinTech and the FCA 

The regulator has also identified specific areas in which it believes it can provide support:

  • clarifying what FinTech/RegTech firms would need to do in order to be compliant with the UK regulatory regime;
  • supporting the current FinTech and RegTech environment – by working collaboratively to identify appropriate areas of interest and emerging themes;
  • providing additional clarity on its expectations in relation to the use of RegTech; and
  • seeking to understand any barriers to entry, innovation and adoption of RegTech and addressing these where possible. 

What next, and the opportunity to shape the FCA’s thinking 

Against this background, the Call for Input sets out key questions (reproduced below) on which it is seeking views. There is no “closing date” for responding, but as the FCA is envisaging further engagement (including workshops) on this topic in the first part of 2016, early responses are likely to be more influential in shaping the FCA’s thinking and direction.

An update from the FCA is promised for spring 2016 and it is to be hoped that the FCA’s initiatives in this area act as a further enabler (and not a brake) on the growth of FinTech and RegTech. 

The FCA’s questions:

  1. What RegTech could be introduced in order to make it easier for firms to interact with regulators, at a lower cost and administrative burden?
  2. What role would it be most useful for the FCA to play in order to foster development and adoption of RegTech in financial services, and what method would best suit this engagement?
  3. Are there any specific regulatory rules or policies that cause barriers to innovation or adoption of RegTech for financial services (products or processes)? Please provide examples of when these rules or policies have stifled development/adoption and describe the impact (e.g. delay, abandonment of project, economic impact). We are also interested in hearing about regulatory rules or policies that may extend beyond the UK regulatory jurisdiction including, for example, European or international policies and agreements.
  4. Are there any regulatory rules or policies that should be introduced to facilitate innovation and adoption in RegTech for financial services (products or processes)? Please provide examples of when the absence of these rules or policies has stifled development/adoption and describe the impact (e.g. delay, abandonment of project, economic impact).
  5. Which existing regulatory compliance or regulatory reporting requirements do you feel would most benefit from RegTech? 

The FCA’s approach to innovation 

This interest in encouraging the development of RegTech is of a piece with the FCA’s interest in encouraging innovation in financial services more broadly. 

The highest profile example of this is the FCA’s “Project Innovate”, which provides a so-called “regulatory sandbox” aimed at helping new and established businesses understand how the FCA approaches authorisation of new product ideas in the financial sector. The FCA’s sub-site devoted to Project Innovate – which also contains materials on RegTech  is here.