It's a sobering reminder of the pace at which the digital landscape is evolving and the scale of the challenge for us as a regulator to bear in mind when we think about both the risks that financial innovation may bring and how to balance that against creating unnecessary barriers to the many opportunities.
The challenge for Woolard and his FCA colleagues is ensuring that a competitive market for financial products continues to exist when the speed of innovation is so fast.
In doing this, he believes, it is necessary to weigh up the risks innovation poses to an open marketplace. What emerges, according to Woolard’s definition, is the world of RegTech, where regulated businesses use technology that integrates with their business models, therefore enabling the business to conform with regulatory norms at ease.
You would be forgiven for assuming that the employment of RegTech is just common sense. However, it’s a little more than that.
RegTech may be Fintech’s only child. A result of the increased place of data and driven by the need for new, agile platforms on which to do business, Fintech is essentially evolving. Meeting the need for platforms to do the same but also take regulation into account is being labelled as RegTech.
But because the growth in regulatory technology has a label doesn’t mean that this is something new. Regulation is a factor in business planning, and solutions that take business planning into account have existed for a long time already, prior to the buzzword banality of something-tech.
The last decade has seen unprecedented shifts in the size and nature of regulatory burden in response to unprecedented shifts in technology and in the marketplace in general. The RegTech phenomenon is part of a circular loop that has been evolving constantly since the end of coffee shop banking.
But what supposedly defines RegTech and has spurned its growth from Fintech, setting it apart from the other products on offer in the world of financial technology, is the widespread adoption of cloud computing, the interest of the regulators, as outlined above, and its confinement to the financial services sector.
Compliance systems confined to the cloud make solutions more easily adaptable and agile, therefore widening the scope for the automation of key regulatory functions. With business model as a key RegTech differentiator, cloud works best in designing solutions that are not only configurable, but also remove great swathes of the person time eaten up by regulation.
The interest of regulators like the FCA has been piqued by this realisation and they want to get involved – because anything that makes regulation and compliance easier is good by them. Hence Woolard’s comments in February. He continued, building on the above definition of what constitutes RegTech, by paying tribute to the start-ups helping financial services institutions overcome their historical lack on investment in regulatory technology.
But in reality, many businesses have seen regulation as the main driver of their business since pre-2007. There has been more than one route to RegTech and the technology solutions increasingly offered by businesses that also provide people as a means to enable compliance, have so far avoided examination.