Head of Marketing
In the last couple of years, #RegTech is on the rise. Whereas most #FinTech companies, founded after the financial crisis of 2008, were somehow in competition with the banks, RegTech switched towards a full collaboration with the banking sector. Providing a helping “technology” hand for solving predominately regulatory-related challenges. It takes 2 to tango, but I’m wondering doesn’t it take 3 to execute the perfect dance? What’s the role of the supervisor? And how do I see this evolving over time? What is #SupTech? Let’s discover together!
Since that same crisis, it was the regulator that took responsibility to reform the banking industry. The aim was to improve the resilience of individual banks reduce the risk of financial institutions failing, protect the financial system as a whole eliminate potential impact on the global economy and protect the general public from paying again for another potential banking crisis. Let’s make an overview of some of the actions that were taken by the regulator.
The ECB, in cooperation with the national supervisors, is responsible for ensuring European banking supervision is effective and consistent.
The above examples show a clear shift from a single responsibility of banks against their customers towards a more collective responsibility of the financial market. Simply said, it’s no longer about your own garden, but there is a shared responsibility for your complete street to look good without losing responsibility for your own garden. From local to global, resulting in a glocal focus. 2 chapters in the #RegTechBlackBook have been dedicated to the glocal phenomena, comparing Singapore (MAS) with London (FCA) and a more helicopter view on the difference between US and EU regulations over the years.
Lately, I have been wondering more and more if we are reaching the limits of the 3 lines of defense (3LOD) principle and potentially need a similar overhaul as described above?
Before I give some examples, just a quick reminder about the good old 3LOD.
Let me walk you through 3 examples that illustrate my thinking process and provide some food for thought for you too. Before we draw any conclusions.
This situation is not wrong, but it made me think that data could be shared amongst different banks at the level of the regulator? There would be a higher likelihood that suspicious data findings would be more refined. A bigger and richer data set will likely give a better result.
With the above exampled and the notion that the regulator sits on tons of data, I believe there is huge potential to lead our financial industry into the next wave of innovation. And in my opinion, the regulator can play a major role in this. When the Dutch regulator approved certain cloud providers as legitimate alternatives for traditional, expensive to maintain, legacy, and on-premise core banking platforms, innovation flourishes. The new era of #SupTech is lurking around the corner. A new time, where our regulators will benefit from new technologies to make firm decisions, and recommendations and potentially take onboard new responsibilities. The latter may impact the 3LOD model as currently, responsibility is sole with the financial institution guided by the rules and regulations set by the supervisor.
The Bank of International Settlements (BIS) published a paper in July 2018, providing an early definition of SupTech: “Supervisory technology is the use of innovative technology by supervisory agencies to support supervision. It helps supervisory agencies to digitize reporting and regulatory processes, resulting in more efficient and proactive monitoring of risk and compliance at financial institutions. A number of supervisory agencies are already using innovative ways to effectively implement a risk-based approach to supervision. Now, technological progress, as well as data availability, offers the potential to radically improve existing supervisory tools or develop better ones through SupTech applications.”
I see opportunities in a horizontal and vertical collaboration between financial institutions and regulators. And the journey has just started, with early signs of change in various markets and regions globally. But I also observe often a lack of insight and understanding by supervisors from the new world we are living in. There are still individuals at both incumbents and regulators that are not yet surfing the new-school wave. This is no blame nor a pointing finger, but rather an invitation to meet, greet and learn from #FinTech and #RegTech companies. Get out and learn your tech. Open up for collaboration and enjoy the process, you will be amazed.
#SupTech is the new black, I see a huge potential to make faster progress and bring more clarity to our common mission to make our financial future proof. I am realistic that the reality is far more complex than perhaps the provocative black and white approach I took in this blog. But let’s focus and combine forces between incumbents, regulators, and fintech’s to create a risk-controlled, sustainable and inclusive banking industry. It is about making the world a better place and in my humble opinion this can only be done in #fullcollaborationmode.
This is what motivates me to keep on going every day working for a startup with an ambition to bring financial inclusion to the asset management industry and sparks my ongoing passion for #RegTech. Let’s collaborate!