1. Fintech and regtech as tools for financial stability
Alistair Milne Rebuilding Macroecnomics Finance Hub 2nd Workshop
Jan 24th , 2019

2. Overview
Objective: motivate further discussion and research on the use of fintech to promote financial stability
I will review some literature
(with a bias towards my own work)
Addressing three issues
(1) Regtech1: using fintech to ease compliance burden
(2) Regtech2: data based monitoring of systemic risks
(3) Using Fintech to automate financial resolution

3. Regtech 1
RegTech – application of financial technology to reduce the costs of regulatory compliance/ SupTech – use of financial technology to support more effective supervision of financial firms (systemic risk an add on)
Growing practitioner and regulator interest Very high costs of regulatory compliance 40-90% of net income for London based firms.
A number of ‘startups’ offering RegTech solutions
Activities of the RegTech Council in the UK

4. Some references
Broeders, Dirk, and Jermy Prenio “Innovative Technology in Financial Supervision (Suptech): The Experience of Early Users.” Financial Stability Institute/Bank for International Settlements.
April 2017 Issue of Journal of Financial Transformation, papers by Treleaven, Larsen and Glani, Butler, Grody
Arner, Douglas W, Jànos Barberis, and Ross P Buckley “RegTech: Building a Better Financial System.” In Handbook of Blockchain, Digital Finance, and Inclusion, Volume 1, 359–73. Elsevier.

5. The concept and the challenge
The concept is simple and attractive.
Automate regulatory compliance, reducing substantial costs
Also involves use of Artificial Intelligence in regulation
The challenge is putting RegTech into practice
Regulatory requirements are complex, regulatory reporting but also a wide range of rules and guidance; application requires interpretation and judgement
Example
So agreed standards (identifiers etc.), shared data part of the story, but this is far from everything

6. Example: work of the RegTech council
(hosted by regulatory and technology consultancy jwg-it)
Focused on London capital markets, working with major firms (more than 100 on mailing lists) and FCA
Currently working towards their 8th quarterly plenary, with a number of “tracks”, e.g. on reporting and on KYC.

7. RegTech 2 A final destination?
Efforts post crisis to use new tools of “big data” and data analysis to monitor systemic risk
Two branches of work
Building data-based approaches to monitoring systemic risk
Addressing the aggregation problem. Standardisation of contracts, maintaining and reporting data at granular level
A challenge (something I have addressed in several papers) why is it so difficult to make progress on 2.?

8. Issues for discussion
Automated reporting and standardisation – is this achievable?
KYC/ ALM and legal responsibilities
(Hint: I understand third party accreditation of KYC are foundering on legal liability)
Rules and guidance include record keeping requirements, appropriate systems and controls, responsible persons (senior management regime in UK), employee skills and knowledge, conflicts of interest, risk-systems, whistle blowing, rules on remuneration, threshold conditions for licensing, financial compensation and ombudsman services, prudential rules and rules on mark to market, specific rules on many functions and sub-sectors, such as consumer, investment and pensions advice, brokerage and research, mortgages including equity release, segregation of client assets, asset management and benchmarks, insurance firms both life and general, market making, securitisation, prospectus and transparency rules in primary and secondary security markets how to automate?
Where does artificial intelligence fit in?
Do we fundamentally redesign regulation, on an IT foundations?