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SFF GREEN SHOOTS SERIES: HAS COVID-19 LED TO AN INCREASE IN REGTECH DEMAND?

May 11, 2020

This week on the Green Shoots series, we discussed the impact of COVID-19 on regulatory practices and the rise of RegTech. On 11 May, we were joined by some of the leading voices from the public and private sector who weighed in on initiatives driving the adoption of RegTech and some of the emerging use cases in RegTech and SupTech. A big thank you to our speakers: Andrew McCormack, Centre Head for the Bank for International Settlements Innovation Hub (BISIH) in Singapore, Abhishek Chatterjee, CEO and Founder at Tookitaki, Diana Paredes, CEO and Co-Founder at Suade and Julia Walker, Head of Government and Industry Affairs at Refinitiv. Some highlights from the session:

Resources

  • G20 TechSprint: more information here. The closing date for applications is 20 May 2020. For enquiries, please contact techsprint@bisih.org
  • Q&A with Speakers: check out our speakers’ responses to your burning questions, below.
  • Some advice from our speakers to founders: below
  • If you missed the session or would like a replay, view this on our YouTube channel here. Do follow us for more videos!
  • Want more? Check out upcoming Green Shoots sessions on our SFF website here.

Let us get through this together and be stronger, when the green shoots start to appear.

Some Advice to Founders

Diana Paredes: In FinTech, we have such a strong group of entrepreneurs around the world. I feel strongly about not losing that momentum and energy we have from our community. Something that I recommend in general to founders from younger companies – where you have sustainable revenue or where you are still trying to get stuff off the ground. I would say, think about your business in a way where you can demonstrate sustainability going forward. Fundraising rounds and the way they were done before – expect a huge re-adjustment in the industry around that. When you speak to investor communities, it is very clear that the metrics they look for are completely going to change. You have to factor a massive COVID-19 scenario as part of that. I recommend reading this article, about thinking of the new metrics we will be facing as businesses and entrepreneurs. It is important to start thinking about re-shaping your business in a way that makes it more sustainable and less dependent on investment. Getting new business is going to be tough but this also presents a huge opportunity for upselling. Don’t be discouraged. Focus on the customers you have right now and bank on that because it will take you further.

Julia Walker: I’d like to call out an initiative that MAS has put forward, in terms of supporting digital transformation in the industry - such as the COVID-19 Support Package for Singapore FinTechs. What we are also hearing is that budgets have been slashed at a number of major investment banks, but not for compliance or this area. So if you are feeling in despair, know that these budgets are still there and people are being told to accelerate in these areas. I still think there are many opportunities particularly in this sector for RegTech and SupTech.

Abhishek Chatterjee: There are two things which are important for entrepreneurs in this journey. One – which I personally believe in – is grit. There is a famous quote from Angela Duckworth on this. One of the key metrics to identify if something will be successful or not, is grit. Things will be uncomfortable, but the only difference between success and failure, is grit. The second is a concept I strongly believe in – called the Stockdale Paradox. It basically means every entrepreneur believes he will be successful (and rightfully so). But research has shown that the successful ones believed they would be successful at the end, but they also acknowledge / accept the current challenges they are facing. If you are able to look into the challenges and solve them one by one without simply thinking you will be successful, that is what makes a successful entrepreneur. So be extremely hopeful, but also tackle the current challenges. As entrepreneurs, we need both.

Q&A with Speakers

Question: Andrew, what is BIS’ definition of RegTech? Is it automating the regulatory reporting process of FIs

Response: Andrew McCormack: It is much broader than just automation... I recommend that you check out this paper: https://www.bis.org/fsi/publ/insights19.pdf


Question: From a definition perspective, is RegTech meant for regulated entities or does RegTech also mean technology for regulators? If so, how it is different from SupTech?

Response: Andrew McCormack: I’m not sure if this is a popular opinion but I just see it all as RegTech! SupTech feels like a subset of the overall regulatory ecosystem.

BONUS answer – Again not formal, but some people think about RegTech and SupTech being flip sides of the same coin. That is that RegTech is technology to transform how regulated firms achieve compliance and reporting requirements, SupTech is technology that transforms how Regulators and Supervisors ensure compliance and monitoring.


Question: Has the demand for RegTech actually increased over the last few months as a result of the COVID crisis

Response: Andrew McCormack: Demand for ALL tech has increased over the last few months. This crisis will put wind in the sails of RegTech and digital strategy. That said, we need a return to semi-normal operations before large-scale transformation programmes (or substantial new projects) can be (re)launched.


Question: How can BIS help accelerate RegTech adoption?

Response: Andrew McCormack: The recently established BIS Innovation Hub seeks to identify and develop in-depth insights into critical trends in financial technology of relevance to central banks, to explore the development of public goods to enhance the functioning of the global financial system, and to serve as a focal point for a network of central bank experts on innovation (https://www.bis.org/topic/fintech/hub.htm). An immediate area of priority on the current work agenda is to help facilitate and promote greater RegTech and SupTech development. The G20 TechSprint is a first practical initiative in that direction and we would continue to work with the central banking community and technology partners to advance this work. More details here: https://www.g20techsprint.apixplatform.com/landing


Question: Do you see regulators relaxing requirements to allow cloud adoption, especially where the service providers are not based in country?

Response: Andrew McCormack: Regulators are becoming more and more comfortable with hyper scale cloud providers - Australia, UK, Canada, and Singapore all have regulated entities operating in the cloud. Also, it is true that cloud providers have matured in terms of their approach to government and regulated companies (FedRamp etc...)


Question: Is the G20 TechSprint open to other financial regulators?

Response: Andrew McCormack: Great question. We kept participation rules wide open but we hadn’t thought about having regulators act as participants. The FSB members will all have the chance to review the solutions and we would be happy to share with any other regulators who are interested. The closing date for applications is 20 May 2020. More details here: https://www.g20techsprint.apixplatform.com/landing


Question: What is more difficult for banks, data governance or identity management and why?

Response: Andrew McCormack: Both are hard... but data governance is within control of a single institution whereas identity is an ecosystem issue (and therefore not entirely within control of any single stakeholder).


Question: Regulators have tried many times to create global standards for banking data - however, even agreeing on a financial instrument type classification within the G20 turned out to be mission impossible. Is it really realistic to create a standard like this with short term results?

Response: Andrew McCormack: Standards are HARD.


Question: Abhishek, What do you see AI's role in RegTech? Please share use cases and examples to help with our understanding.

Response: Abhishek Chatterjee: AI/ML is revolutionising the RegTech space by ensuring sustainable compliance. Financial institutions are increasingly focusing on new and innovative AI/ML solutions to address these sustainability challenges as compliance issues continue to rise. Few of the use cases where AI/ML are making significant impact are in Anti Money Laundering/Terror Financing, Automation and Reconciliation, Trade and Employee Surveillance, Fraud Prevention, Customer/Enhanced due diligence and reporting and case management.


Question: The opportunity is immense but will require unprecedented collaboration across dealers, exchanges and service-providers (and regulators!) etc. However the past few years’ track record is poor. How do we address that and avoid missing the boat…?

Response: Julia Walker: A good question. We have started to address these issues in the UN Task Force https://digitalfinancingtaskforce.org/


Question: It has been said that the GFC (Great Financial Crisis) played a critical part in pushing forth the advancement of FinTech, which was a little over a decade ago. In this current global crisis, how much do you think would this crisis play into the gaining of the awareness for RegTech?

Response: Julia Walker: We recently reflected on this and have published our thoughts here https://www.refinitiv.com/perspectives/fintech-innovation/digital-finance-and-crisis/


Question: Do you think that COVID-19 will accelerate the research and implementation of Central Bank Digital Currency (CBDC) across the globe? What do you think will drive/not drive/discourage CBDC? How do you think RegTech start-ups can get involved or position itself for this?

Response: Andrew McCormack: There is renewed interest in all digital payment methods due to the crisis. It should be noted that CDBC research was picking up steam even prior to COVID-19 with many Central Banks announcing workplans in this emerging area. 


Question: If we look globally, India has actually moved ahead in this direction. The data driven applications for banking are being used to disburse loans to SMEs, the most vulnerable segment of the COVID-19 impact. What are exemplary examples of nations that have taken this RegTech approach? What we can take as a best practice to learn from?

Response: Andrew McCormack: The two regulators who are leading in RegTech are the Financial Conduct Authority in the UK and the Monetary Authority of Singapore. I would refer you to Jo Ann Barefoot’s regtech innovation podcast for great interviews with leaders from both organisations.

 


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SFF 2020 will continue to take place as planned from 9 – 13 November 2020 in Singapore. The organising committee is closely monitoring the situation arising from COVID-19 outbreak and will keep the public informed of any updates. More details here.