Regulatory technology

It is believed that the development of regtech is a response to the increase in costs associated with financial regulation, as well as low profitability in the context of near-zero interest rates in developed economies . Thus, regtech is a means of reducing the cost of financial services for participants in the financial market and the costs of state regulatory agencies. Accordingly, the developers (vendors) of regtech are located in countries with the most complex regulatory regimes and a highly competitive environment - in the United States and Great Britain ^[2] .

Regtech is involved in the areas with the highest workload, namely, reporting and customer identification procedures, as well as risk management . They account for about half of the offer of regtech products. To a lesser extent, regtech is used in automation of control, verification of compliance of a financial product with regulatory requirements, stress testing , equity planning, etc. ^[2]

In the second half of the 2010s, the main trends in the development of regtech are associated with a decrease in manual processing of source data, primarily, the preparation of transaction (transaction) reporting and customer identification ( KYC ). Customer identification is offered by various companies using official and private databases. One of the market leaders is Trulioo (Canada), which offers the GlobalGateway product for remote provision of services ( eCommerce , payments, transfers, insurance, etc.). The product allows the identification of 4 billion customers in more than 40 countries. The solution includes remote identification, confirmation, collection, storage and processing of personal data ^[3] . In another area, Abide Financial (Great Britain) enters an example, which offers the processing of data arrays through cloud technologies for banks, brokers, hedge funds and asset managers. The NEX Regulatory Reporting solution allows you to prepare reports in accordance with the requirements of Europe (EMIR, MiFID / II, SFTR, REMIT), USA, Australia and Singapore. Similarly, developers offer solutions for reporting to trade repositories ( REGIS-TR ), supervisory authorities ( Vizor ), etc. ^[3]

Regtech is not limited to participants in financial markets. In the field of regulation and supervision, its application is called "SupTech" ( English supervision technology ). SupTech solutions are designed to automate and streamline administrative and operational procedures, digitize data and work tools, and improve the analysis of loosely structured data. The technologies used are Big Data, machine learning, artificial intelligence, and cloud technologies. For example, Big Data and machine learning technologies allow you to analyze relationships, process unstructured data, including from external sources (media, the Internet), and use its results to detect illegal actions in the financial market and predict potential risks. The data-centric approach of the regulator’s interaction with supervised organizations will contribute to further increasing the transparency of the financial sector and creating an effective supervisory environment.

Some prudential agencies are also considering automating the supervision process itself ^[4] .

According to the Bank of Russia's Guidelines for the Development of Financial Technologies for the Period 2018–2020, SupTech solutions in the domestic central bank may relate to the areas of application of the SupTech solutions ^[5] :

• borrower affiliation analysis;
• cash demand forecasting;
• predictive analysis of the stability of credit and other organizations based on payment data;
• online transactional analysis of the data of credit organizations regarding the operations of financial market participants in order to identify cases of fraud.

Austria's SupTech Experience

Austria is often mentioned as an example of SupTech application, where in 2014 the National Bank of Austria launched a project for centralized data collection on the ABACUS platform developed by BearingPoint . The platform is managed by Austrian Reporting Services ( AuRep ), which is a joint venture of the eight largest Austrian banking groups (which account for 87% of the market) ^[6] . Banks send to ABACUS micro-data (information about individual financial contracts, deposits, loans) in real time (the next after the conclusion of the contract) in a standardized form. This information is the so-called "base cubes" of data. Upon receipt of an information request from the regulator, the platform generates the so-called “smart cubes” of data. They represent information aggregated in a form consistent with the objectives of the analysis of the regulator. The main advantage of this approach is the absence of the need for banks to provide the same information to the regulator several times for different purposes, as well as the removal of a significant part of the costs of aggregating data from banks and calculating analytical indicators for reporting ^[7] . The National Bank of Austria notes that the system allows you to move away from data collection according to a certain template, which has a number of critical shortcomings: the possibility of errors, duplication of work, insufficient detail ^[8] . According to BearingPoint , with the introduction of the ABACUS system, banks' costs for reporting to the regulator fell by more than 30%. BearingPoint is exploring the possibility of introducing a platform based on similar technology in the UK .

• Austrian reporting services
• BearingPoint Software Solutions

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• Regulatory Sandbox
• Financial technology