Welcome back to our course on FinTech Security and Regulation.
In today's module or session,
we're going to talk about RegTech and what is RegTech.
Which is kind of a shorthand word used for FinTech Regulation,
but it's more complicated than that.
In fact, you would like to say,
well this should be easy to find,
just go to Wikipedia to see what people say,
but the problem is that everybody can agree on
part of the definition that it's a merger of technology and regulation.
But, there's two very different perspectives
depending on where you're coming at this or seeing it coming from,
as to what does RegTech actually mean.
On the one hand,
it can define technology, software, innovative processes,
new businesses used to help
financial services firms comply with increased regulation faster and cheaper.
There's a whole area of software called RegTech which is designed to help
large financial institutions better manage regulatory requirements.
That's technology to reduce the cost of regulatory compliance.
The alternative view is that RegTech is the regulation of FinTech,
or the regulation of technologies like blockchain,
or the regulation of startup firms like FinTech lending firms,
or the ICOs or other things like that.
So, it's the application of regulation to new technologies, new innovations,
new business processes, and new firms that is regulation of FinTech.
So, it depends on what the perspective is you're looking at it.
We can say both are types of RegTech,
both perspectives have some validity and have some application in the market.
We're going to look at both when we think about FinTech security and regulation.
We're going to look beyond
just a narrow definition of RegTech and look more broadly and say,
what is it we're trying to do with regulation,
and with security that affects FinTech companies,
marketplaces, and in this sense affects traditional finance firms as well.
How can we use technology to reduce
the cost and time required for regulatory compliance?
So, both are valid. Now, as we think about RegTech innovations,
Deloitte described RegTech as the new FinTech,
which is an amusing concept or idea that this is the new FinTech.
But, basically what they were saying in making
that assertion is that there are huge opportunities in RegTech today.
Just like a few years ago,
there were huge opportunities in FinTech for many, many startups.
What Deloitte is effectively saying is that the enthusiasm,
the number of startups in the regulation side of the FinTech space is exploding.
Just like FinTech applications
a few years ago exploded and there's still a lot of new FinTech companies.
It's not like FinTech has gone away,
but they're saying this is the new area of exuberance,
enthusiasm, and a dramatic rise in the number of startup companies.
Lots of new opportunities,
particularly in the regulatory compliance side of FinTech.
But, from government's perspective,
they're also looking and saying FinTech startups are getting more mature,
and we have to think about this.
So, this is the new challenge or opportunities for government regulators,
for existing firms, ask why can they do this and disrupt my business,
but they're not regulated than I am.
How is that fair? So, there's a lot of interests
in reducing the cost of regulation or rethinking regulations.
That might be reducing regulations on banks so that they can
do more RegTech type things or FinTech type things I should say,
or increasing the regulations on FinTech startups,
so that banks can compete on a level playing field.
Now, I'm not sure the playing field's entirely level.
Banks have some serious advantages.
So, when they talk about level playing field,
they're not necessarily saying have us open up our IPI,
have us make the playing field entirely level for everybody,
that would be a nice idea in some ways and certainly many startups would say,
"Yeah, let's level the playing field.
Let's talk about where it's not level from our perspective."
But, at least given that that's also regulation or regulatory related,
whether or not banks have to open up their application programmer interface, their API,
and allow startups to get access to data or link into
their systems in ways that previously would not have been possible,
and by the way, we do that with software companies.
We say, "Microsoft, you must open up your API for Windows,
so that other people can write apps for it."
We say that by law Microsoft cannot make
a proprietary linkage for a browser that both lockout Firefox,
or Google Chrome, or others, and disadvantage them.
So, that's not a crazy thing to think about regulating,
but it's a new type of regulation.
So, there's many new ways to apply innovations to improve compliance,
make it more efficiently.
Some RegTech or even FinTech innovations are driven by governments,
for example, the UK with their open API interface,
is an example of a government initiative to make the UK better at FinTech,
to make the UK more of a financial center for
leading edge innovative applications and firms.
So, that's a government driven,
led initiative to make the UK more competitive and leading edge in financial services.
But, that's a government-led RegTech initiative affecting FinTech.
Theodore Henry King CLARKAssociate Professor
