On 21 August 2020, the Bank for International Settlements (BIS) published a speech by Benoît Cœuré, Head of the BIS Innovation Hub, which focussed on the main challenges to the development of reg tech and sup tech in the financial services sector.
Cœuré begins by describing the differences between reg and sup tech – namely that the former is used by financial institutions to assist with regulatory compliance whereas the latter is used by supervisory authorities in the discharge of their duties – before moving on to a discussion of the clear benefits of each. The greater analytical power of sup tech (as compared to existing data driven processes) if properly adopted, would give greater time to supervisory teams to focus on pre-emptive and early supervisory actions. Similarly, greater effective adoption of reg tech by financial institutions would lead to cost reductions in regulatory compliance and processes, including fraud detection, regulatory reporting, data collection and risk management.
But there remain challenges across the industry – and the globe – that are preventing a more speedy adoption of reg and sup tech. Firstly, there is a general ‘black box’ problem with a lot of artificial intelligence and machine learning in that potential buyers of the technology may not really understand how the product actually works. Secondly, licensing models across the world in a number of jurisdictions pre-date the advent of a lot of reg and sup tech and are therefore rendered to be insufficient or ineffective. Thirdly, and specifically in the case of sup tech, there is a need for separate regulatory agencies to adopt new technology in tandem, which rarely occurs and is difficult to facilitate. Fourthly, there is a relatively small talent pool of engineers and designers in the reg and sup tech space, making adoption of the technology riskier and more costly than it need be. Finally, Cœuré mentions the long lead time for the on-boarding of fin-tech partners serves as another barrier to the greater adoption of re and sup tech.
However, Cœuré closes his speech by discussing the BIS partnership with the Monetary Authority of Singapore and the ASEAN Financial Innovation Network, which have developed the API Exchange (APIX): the world’s first cross-border, open architecture API marketplace and sandbox platform in which participants can integrate and test solutions with each other via a cloud-based architecture. BIS hope that this will allow for the development of ideas and processes that will enable greater technological adoption in other jurisdictions across the financial services industry.
To read the speech, please visit here.