RegTech
Exploiting technology to increase GDP… through the regulatory data quality
Read in ITALIAN
July 12, 2022

RegTech-powered hi-quality regulations means higher Gross Domestic Product

If the improvement of the regulatory field in itself did not represent a valid reason to invest in RegTech, maybe bringing the GDP to the table would change the situation. One of the most evident outcomes of the RegTech for Regulators” report by the World Government Summit, in fact, is that “the regulatory environment has a direct bearing on the capacity of an industry or an economy to innovate and grow”. For the sake of clarity, it must be said that the World Government Summit is “a global, neutral, non-profit organization dedicated to shaping the future of governments” also exploring “the agenda of the next generation of governments, focusing on harnessing innovation and technology to solve universal challenges facing humanity” - as its official website reports. In particular, the “RegTech for Regulators” paper focuses on the need to “re-architect the system for better regulation”, also highlighting how this operation would both “reduce the cost of compliance” - on the regulators hand - “and become catalysts for innovation and business growth” - at a more general level.

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The link between regulations and GDP: the “RegTech for Regulators” report by the WGS

The basis for the analysis of the WGS, made in collaboration with Accenture, was a World Bank study of business regulations conducted in 135 countries which stated that nations with better regulations grow faster. Some figures about that? Examining the link between business regulatory reform and economic growth across 172 countries, the Paris School of Economics’ Professor Jamal Ibrahim Haidar estimated that a business regulatory reform, on an average, increases the rate of growth of GDP by nearly 0,15%, thus confirming the evident positive correlation between the perception of regulatory quality and GDP per capita for the top 50 economies, accounting for nearly 92% of the global GDP. This is why the “RegTech for Regulators” paper is aimed at offering “insights into how regulators can use emerging technologies - especially RegTech - to enable a more efficient and effective regulatory environment”, considering “RegTech” as “the innovative application of emerging technologies by organizations to adapt to changing compliance requirements more effectively and efficiently, mitigate risks due to non-compliance and gain competitive advantage”. Well, this statement is perfectly in line with our post on “How to transform financial compliance from blocker into a competitive advantage”. And more. The statement is also aligned with these words of the European Banking Authority: “RegTech solutions have the potential to foster a more efficient and effective financial sector and be a factor in the successful implementation of the regulatory framework”.

Exploiting Regulatory Technology to build a data-centric approach to regulations

Going deeper in the mentioned report, we can get an overview of the various benefits that would affect both regulators, firms and society following the introduction of RegTech solutions aimed at “redesigning regulatory processes, enabling real-time data-driven decisions that will ensure mission effectiveness and promoting innovation”. The document addresses “an insight-driven approach based on RegTech solutions based on innovative applications of emerging technologies - including Artificial Intelligence for real-time compliance monitoring, AI-based automation, and so on - as new and advanced solutions to support regulators in their work”. And this is exactly what our RegTech platform, Daitomic, offers to financial institutions. Obviously these possibilities can be exploited only through a “collective buy-in from all stakeholders (the regulator, the regulated and the protected)” in order to convert “large amounts of data into knowledge and insight with a data-centric approach - harmonizing data across jurisdictions and institutions, creating an integrated data taxonomy, breaking data silos created by legal and regulatory requirements, and standardizing data and data sharing vehicles”. These words are nothing new for us at Aptus.AI, as they resume the goal of our already started work with BankIT in the context of the Fintech Milano Hub, namely the Innovation Hub provided by the Bank of Italy for the financial sector’s innovators. The paper highlights that “the quality of regulation has a bearing on economic growth and development, and it can also spur companies to innovate”. To sum up: “regulation can move organizations to develop new products and services and, on the flip side, the absence of a supportive regulatory environment limits an economy’s ability to attract investments and grow”. This is why RegTech solutions are needed not only to support all the strict regulatory activities, but also to help companies that “struggle to keep pace with the changing regulatory landscape and continue to face punitive actions”. These firms “are now looking at more innovative ways to reduce compliance costs, especially the use of technology”. As we have already written, the introduction of more effective and efficient regulatory systems can be achieved through a “shift from the traditional debate between risk-based and principles-based regulation towards a system that is data and insight driven” therefore exploiting a “digital transformation of regulators using RegTech”, which would allow to:

  • focus on real-time insights and forecasts
  • develop better internal risk assessment and control mechanisms
  • build an assurance of compliance
  • increase the experimentation in controlled environments (such as Innovation Facilitators)

The RegTech-powered benefits for regulators, for economy… and for society

After this deep presentation of the positive changes that RegTech would introduce in the global regulatory framework, we can now follow the “RegTech for Regulators” report to resume the benefit that technology would bring to the regulators themselves. Starting from an internal perspective, we can quote the chance to:

  • build preventive compliance systems
  • monitor everything in real-time (sharing data in real-time, which would be an essential possibility, as we already highlighted)
  • improve supervision using the wealth of data and information (for instance, the National Bank of Rwanda Uses an electronic data warehouse system to automate and streamline reporting processes)
  • narrow the gap between intent and implementation
  • increase internal process efficiency.

All these opportunities for regulators would be possible by automating their workflows, to reduce the cost and complexity of regulatory reporting and compliance for itself as well as regulated organizations, exactly as described in the dedicated page on Daitomic website. But there are also some external benefits that would be offered to regulators, namely the opportunity to:

  • ensure effective competition (like in the case of the Dubai Financial Services Authority which regulates the Dubai International Financial Centre)
  • reduce compliance expenditure and complexity (by lowering the cost of compliance through automation of document workflow, onboarding of customers, etc.)
  • increase innovation and competitiveness of businesses (exploiting simulations to understand the impact of regulation on new products and services, enhancing risk management through inbuilt compliance mechanisms that automate regulation interpretation and create self-adapting systems).

In order to reach these goals, the “RegTech for Regulators” paper identifies four key steps that regulators seeking to embrace RegTech solutions can follow:

  • initiate open engagement with stakeholders (like it happens with the Fintech Milano Hub)
  • orchestrate an innovation ecosystem
  • test potential solutions
  • transform operations with radical changes in internal infrastructure, operations and personnel.

At Aptus.AI we are already exploiting this technology-based approach with our AI proprietary engines, which generate the machine readable regulations exploited within Daitomic - our RegTech platform -, in order to automate all the compliance processes’ steps which are currently made through manual work, thus being too slow, not very accurate and subject to operational risks. The goal is to build a regulatory model that can also be defined as “Regulation as a Platform”, but we’ll discuss this issue in our next blog post. For the moment, we invite you to learn more about Daitomic by… trying it for free with a click here below!

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