Regulatory technology or RegTech, along with wealthtech and proptech (property technology), is on the rise. Regulators are using it more and more and venture capitalists are investing in it, even though its take-up among firms seems to have plateaued temporarily.

According to a report from Business Insider Intelligence, Regtech start-ups are shouldering much of the compliance burden at traditional financial institutions, but they are struggling to scale up in volume. This, the publisher claims, is leading to "unexpected inertia in the RegTech industry."

A report by Thomson Reuters seems to bear this surprising assertion out. In its RegTech section it says that only 8% of firms implemented a piece of RegTech software in 2018, compared with 30% the previous year.

The Business Insider Intelligence report, meanwhile, expects financial firms to take up RegTech software more avidly in the next 18 months because: (i) start-ups' business models are improving; (ii) start-ups are forming more and more partnerships among themselves and collaborating in a more organised fashion; (iii) regulators are promoting RegTech more and more; (iv) financial institutions are feeling more favourable towards them; and (v) consultancies are helping to persuade firms to adopt them.

Regulators using RegTech

A regulatory reporting platform for Austrian banks has now emerged. The Austrian central bank – Oesterreichische Nationalbank (OeNB) - has been collaborating with the country's banks to develop a new reporting model. It has based its initiative is based on "a greater harmonization and integration of data, as well as greater integration of the IT systems of the supervisory authority and the supervised entities." It works through a shared 'utility' (a mysterious latinesque word that Nordic regulators are using to describe a one-purpose, centrally important, mutually owned software company) called Austrian Reporting Services GmbH (AuRep), a joint venture of the largest Austrian banking groups. AuRep runs a 'common' (presumably this word means 'shared' rather than 'vulgar') regulatory reporting platform based on Bearingpoint's ABACUS/GMP software which serves as a central interface between the supervised banks and the OeNB.

Another 'interface' concern, the RegTech for Regulators Accelerator (R2A), was set up in 2016 to help financial regulators to understand marketplaces and customers' needs in data-rich environments. It pioneers software on their behalf and works with software innovators to build bespoke systems.

The Philippine banking regulator, the Bangko Sentral ng Pilipinas (BSP) was the first financial authority to collaborate with R2A. BSP asked it to develop an Application Programming Interface (API) and a back-office reporting and visualisation app to:

• allow financial institutions to submit data digitally and automatically to it;
• increase the volume, granularity, and frequency – and improve the quality – of the data that they submit; and
• enable BSP staff to improve data validation and analysis, and generate customised reports for their own use.

Nobody yet knows whether this is nearing completion. Meanwhile, the central bank has also asked R2A to develop a chatbot prototype and processing utility solution (i.e. a dashboard with administrative and reporting capabilities, integration with existing complaints process, etc.) for customers' complaints. The chatbot solution will allow consumers of financial services to send in their complaints through their mobile handsets (either on an app or on SMS). It will also allow the regulator to answer queries, manage the structure and flow of automated conversations based on expertise and historical data and use the data it obtains. The regulator is expecting to save a good deal of man-hours through this manoeuvre.