By FINTECH Books Contributor, Matt Homer and Mack Wallace
The pace of innovation in financial services has become too quick for regulators to keep pace. Traditional, manual-intensive regulatory techniques such as on-site examinations are ill-equipped for quickly evolving and rapidly expanding digital marketplaces. The speed, sophistication, and scale of new fintech-driven marketplaces will require regulators to retool and RegTech will be a key driver of that transformation.
If we think about regulation across a life-cycle, spanning from the chartering process to ongoing oversight and enforcement, we already see significant attention focused on reinventing the first part of the life-cycle, with sandboxes and new chartering processes allowing new types of players into the system.
However, as fintech-type companies become a part of the system,regulators must then find ways to effectively fulfil their mandate related to oversight and enforcement.This is why regulators will need to become significant users of RegTech themselves if they want to keep up.
Emerging market regulators in particular face a distinct challenge: they must safeguard markets burgeoning with millions of first-time users by regulating new technology-driven entrants starkly different from the branch-based banks they have known. It is tempting for regulators to step on the brakes to hold back these forces, lest a new entrant or experiment blows up on their watch.
The solution, of course, is not to limit their development, but to ensure regulators have the tools they need to adequately understand these new markets and take action, when necessary. Greater regulatory confidence reinforces healthier, inclusive financial markets.
In light of all of these trends, emerging market regulators have begun to re-imagine regulatory oversight and embrace a technology-driven approach.The day is soon coming when regulators may, for example, enlist consumers as their eyes and ears by crowdsourcing information using chatbots or use machine learning to spot suspicious activities and combat illicit money flows.
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