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Innovate Finance and Hogan Lovells explore RegTech potential for regulators in new report

Innovate Finance’s Transatlantic Policy Working Group (TPWG), along with strategic partner Hogan Lovells, has published a new report that focuses on the potential of regulatory technology (or RegTech) for regulators.

Titled “Future of RegTech for Regulators – Adopting a Holistic Approach for the Digital Era Regulator”, the report was presented last week in Washington, D.C. at a TPWG gathering, hosted by Innovate Finance and Hogan Lovells.

“FinTech, RegTech, and innovation, generally, have the potential to radically transform the U.S. and global financial systems. U.S. regulators have, so far, remained more cautious than some of their international counterparts in embracing technological innovation in financial regulation. The Report provides insight into the international efforts to encourage and deploy new ideas and techniques for regulatory compliance and outlines the steps the U.S. can take to fully integrate the evolving and essential features of RegTech into our own systems”, Richard Schaberg, Partner and head of Hogan Lovells U.S. Financial Institutions Practice Group, said.

The report explores the role regtech can play in tackling the fragmented U.S. financial environment by providing an overview of the international movement in innovation and RegTech, as well as the current efforts by the U.S. regulators. It also puts forward a framework by which regulators can assess their drive towards becoming leaders of digital change.

The framework outlines three broad approaches, which can be implemented alone or in tandem. These include:

  • Ecosystem: Engagement of the government with the industry, which can help identify new technology and market developments. This would allow regulators to work closely with technology innovators and understand any process and regulatory infrastructure adjustments that may need to be made.
  • Digital Financial Infrastructure: Implementing new technologies, which can help facilitate the streamlining of banks’ submission of applications, payment settlement, and securities clearing.
  • Rule and Process Changes: Implementing new rules and processes to encourage and allow innovative solutions to regulatory compliance issues, both for the regulator and for industry. According to the report, this could include defining new regulation in a machine-readable format; or adjusting a handbook to accommodate the application of new technology such as blockchain compatible data protection or identity rules.

In addition, the report encourages setting up of sandboxes, industry or regulatory, which could enable regulators to better identify where appropriate rules might need to be adapted, or where regulatory processes may require amendment.

“Regulators are already making this transition and while this future is some years from becoming reality, only by pursuing a holistic approach to technology-enabled regulation will regulators move beyond adapting and automating existing practices and start to reimagine rules and process fit for a digital age”, Lawrence Wintermeyer, CEO of Innovate Finance, said.

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