Can a bot replace Rod Sims?

Maybe not, but the post-COVID acceleration of digital transformation generally should flow through to digitalisation of regulation and compliance.

However, according to the Hong Kong Monetary Authority (HKMA), regulatory technology (Regtech) has a perception problem. Despite having been tapped for quite some time as the next transformation darling to revolutionise compliance processes, the broad conclusion has been that it is not quite there yet.

The HKMA recently released a KPMG produced report, ultimately concluding that the infrastructure and service providers are available and willing to serve. Major barriers to broader Regtech adoption are cited as a lack of market size, mature solutions, and talent supply, but one of the highest barriers has just been a lack of awareness.

The report sets out 16 recommendations across 5 key areas to assist in this expedition, broadly including:

  1. Boosting awareness by establishing a Regtech knowledge hub, issuing practice guides and hosting targeted Regtech events;
  2. Promoting solution innovation by exploring financial incentives, hosting Regtech challenges, facilitating access to infrastructure and engaging in cross-border Regtech collaboration;
  3. Boosting regulator engagement by continuing to engage overseas regulators and communicating with the broader Regtech community;
  4. Developing a talent pool by creating a skills framework for Regtech adoption and formalising training by introducing or enhancing Regtech modules for relevant industry courses; and
  5. Sustaining adoption by expanding the Regtech ecosystem through institutional engagement, publishing a Regtech Adoption Index for corporate assessments and magnify the impact of collaboration initiatives.

The report concludes that there is nothing inherently wrong with the Hong Kong Regtech market or the HKMA’s approach to adoption (it congratulates both), rather the upshot is that the HKMA needs to do more of the same but louder.

Regtech ≠ Fintech

The report appears to fall into a common trap: conflating the Regtech and Fintech movements. It describes 5 recent Regtech initiatives, however 3 of these are actually targeted towards fostering Fintech in Hong Kong. Similarly, it seems that the Hong Kong Regtech Committee has been subsumed as a subset of its FinTech Association.

Fintech generally comprises technology implementation to improve the delivery of financial services. Regtech is a broader umbrella term comprising technology implementation to enhance any regulatory or compliance process. Although much Regtech implementation to date has assisted compliance with financial services regulatory processes, it also has application in other regulated industries (eg, energy, media, privacy, communications, transport, resources).

Fintech solutions can be Regtech solutions, but not all Regtech solutions are Fintech solutions; they may intermittently travel together but ultimately have different destinations. Although this conceptual blending may assist Fintech’s growth, it has the potential to stifle Regtech’s growth as a standalone offering.

The Australian experience…

The Australian Regtech market is similarly poised to take off if fostered in the right environment. With an array of providers willing and able to service the platform that was further accelerated by the Hayne royal commission, AUSTRAC’s pursuit of the majors and the ACCC digital platforms inquiry, there is an opportunity for Australia to become a genuine leader in this space.

Similar to the Hong Kong experience, while there is a collective Australian acceptance of Regtech as a concept, it has also been subject to relegation as the overshadowed sibling of the Fintech prodigy.

Uptake has been slow, with many providers noting that it is difficult to gain traction in the market as its role is poorly understood and regulated entities are reluctant to experiment. As part of its mandate, the Select Committee on Financial Technology and Regulatory Technology is inquiring into the effectiveness of current initiatives to promote a positive environment for RegTechs (report due April 2021).

But much like Hong Kong, perhaps this too is just an image problem.

To its credit, the Australian industry effort to promote Regtech has been well aligned with its purpose. The HKMA report pays considerable compliments to Australia’s RegTech Association (one of only a few jurisdictions to have a standalone Regtech association with significant membership), ASIC’s Regtech Series and the broader facilitation of Regtech innovation via ASIC’s Innovation Hub.

However, Australia can learn great things from the underlying tone of the HKMA report. The approach taken by regulators and advocacy groups is right, but there needs to be more of this directed specifically at highlighting Regtech as a standalone force. To decouple Regtech from Fintech and undertake a louder, targeted campaign at fostering awareness, talent and innovation. After all, Regtech has the capacity to revolutionise a spread of regulated industries, not just financial services.

We need to set out on a consolidated cross-industry effort to nurture Regtech as the all-encompassing transformative force that it is and not allow it to become yet another fossilised portmanteau du jour.

So, maybe replacing Rod Sims with a bot is not a bad aspirational target afterall.


Read more: Transforming Risk Management and Compliance: Harnessing the Power of Regtech