Here we are again. For those who follow us, this post may seem repetitive. In fact, we have already talked about a machine readable format for banking regulations, also considering some philosophical aspects - in terms of impossibility for laws to be not just readable, but also machine executable without any human interpretation, given their nature and complexity.
Actually at Aptus.AI we were not looking for confirmation, as the effectiveness of Daitomic - our AI tool for banking compliance management - has already been proven by our partners and customers. Anyway, we are proud that recently the European Banking Authority has formally and publicly validated our choice. In brief, here is the news: within the pages of its “Study of the cost of compliance with supervisory reporting requirement (Report 15/2021)”, the EBA clearly states the need of a next step in the path of the financial sector's digitalization, mostly referring to data collection and sharing between regulators, financial institutions and supervisory authorities. The key word is machine readable. If on one hand executable regulations represent a utopia - in our opinion -, on the other hand a new format for this kind of documents is necessary, in order to leave the currently used - but not accessible - PDF files. The EBA clearly addresses this path for the financial regulatory future, through its 25 recommendations. Actually this future is already here, as Daitomic’s AI engine reads legal PDFs - or any other document format - and makes them readable by machines, thus creating an electronic version of any banking regulation, making it structured and visualizable - and so really accessible.
Actually, these issues related to the so called MDMER (Model-Driven Machine Executable Regulations) have been anticipated one year ago by the Response by EBA to EC Consultation (June 2020), which followed the 2017 Tech Sprint conducted by the FCA (Financial Conduct Authority) and BoE (Bank of England). Anyway, during the last year, other different authorities and experts have talked about the future of regulatory change management. We can surely quote the European Commission, which clearly states that “by 2024, information to be publicly released under EU financial services legislation should be disclosed in standardised and machine-readable formats” in its “Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions” (September 2020), also adding that “in a digital context, the Commission intends to ensure that regulated information is provided in electronic machine-readable formats”. We can also go on with the words of the Financial Stability Board (FSB), which says - referring to the SupTech strategies - that “the most frequently mentioned drivers were the development of data strategies, increased availability of AI techniques, and emergence of machine-readable data”, as we can read in its document titled “The Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions” (October 2020). And the same concepts are expressed by the FSI (Financial Stability Institute) in its “Insights on policy implementation, No 29 - From data reporting to data-sharing: how far can SupTech and other innovations challenge the status quo of regulatory reporting?” (December 2020).
Turning from financial authorities to consulting, here is Oliver Wyman, which - in its 2020 survey “Supervising Tomorrow” - writes that “submitting regulatory returns and notifications were ranked highest by our survey respondents for their potential to make use of digital interfaces, and machine-readable reporting is the technique most expect to be used”. But also the academia world is aligned, as confirmed by the study “Use of RegTech by Central Banks and its Impact on Financial Inclusion” conducted by N. Gurung and L.Perlman, who write “newer technologies such as machine readable PDF files can also be used to simplify the evaluation process”, because “market participants can certainly benefit from regulatory text in a language that machines can understand – that is, machine readable regulations – which can be directly introduced into market participants’ IT system without human intervention to automatically implement embedded rules and close the gap between intention and interpretation”. However, going back to the start, the exclamation mark has come with the above mentioned report by EBA and its 25 recommendations, among which, the number 7 says “provide instructions for reporting requirements and other data collections in machine-readable format”, also adding that “the EBA will continue to make advances in RegTech on the supervisory side such as making legislation machine-readable or similar”.
In view of all these, it seems very clear that all the financial authorities are addressing automation as the way for the FinTech world to face the regulatory change management challenge. A challenge that is becoming increasingly harder, as regulations are daily growing, and they will not stop doing so. These considerations by the EBA, the European Commission, and many other players in the banking sector, come as a further motivation for us at Aptus.AI to continue on our path with Daitomic. This financial compliance management platform exploits AI to make banking regulations accessible and to automatically extract regulatory obligations, aiming to reduce time and costs needed to be compliant with European and national financial regulations. Fortunately the wait is over, the future of RegTech is here - and it is called Daitomic.