Regulatory technology is driven by data and technology in the context of closer integration of finance and technology. It is based on new technologies such as cloud computing, artificial intelligence and blockchain, and is value-oriented with more efficient compliance and more effective supervision. s solution. The more complex and volatile financial market environment in the context of financial technology has given regulatory technology a broader use and development space. On the one hand, after the financial crisis in 2008, financial supervision has risen to an unprecedented height, and regulators are eager to obtain more comprehensive and accurate data. On the other hand, the regulatory authorities face the massive data submitted by financial institutions and need to use technology to improve processing. Efficiency and regulatory effectiveness; in addition, financial technology brings new risk scenarios and risk characteristics, and it also requires regulators to “actively respond to science and technology”.
At present, regulatory technology has been widely used in financial supervision. In terms of specific functions, regulatory technology has covered data collection and data analysis. Data collection includes the formation of reports (automated reports, real-time detection reports), data management (data integration, data validation, data visualization, cloud computing). Data), etc.; data analysis includes collecting and communicating information about consumers, regulated institutions, market supervision, misconduct detection analysis, micro-prudential supervision and macro-prudential supervision through virtual assistants. In the field of application, regulatory technology has been widely used in the supervision of banking, securities, insurance, Internet finance and other fields. By observing the current international application of regulatory technology in various fields, we believe that regulatory technology has eight major development trends.
Trend 1: Regulating technology to the full chain of financial supervision
At this stage, the use of regulatory technology is mainly focused on the stage of supervision, but the various regulators are trying to explore their application in ex ante and ex post supervision. In financial supervision, the application of regulatory technology such as automated collection of regulatory data and intelligent analysis of risk profiles is becoming increasingly mature. For example, the Austrian Central Bank established the Basic Data Cube for automated data collection and delivery at Austria Reporting Services Ltd.; the Australian Securities and Investments Commission established a market analysis and intelligence system to provide real-time monitoring. At the same time, countries and organizations are constantly strengthening the use of regulatory technology in pre- and post-regulatory phases, including “translating” regulatory policies and compliance requirements into digital regulatory agreements, and establishing regulatory platforms to provide related services; Use the results of compliance analysis for risk management intervention, visual display of compliance, risk information sharing, and optimization of regulatory models. For example, the UK Financial Conduct Authority (FCA) is exploring the use of NLP and AI technologies to interpret the EU Financial Instruments Market Directive II (MiFiD-II), and the US Financial Industry Regulatory Authority reviews and analyzes members' trade through market quality report cards. Compliance with reporting, best execution, company quotes and short selling.
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Trend 2: The cooperation between the supervisory and the compliance terminals to develop regulatory technology has become the main path
The cooperation between regulators and financial institutions such as banks and financial technology companies has gradually become a trend. Financial regulators have been highly concerned about the impact of technological development on their regulatory areas and regulatory approaches. Traditionally, the main way for financial regulators to upgrade their technological capabilities is to establish a financial technology sector and strengthen their own technology research and development. However, with the recent advancement of science and technology and innovation capabilities from the government to the society, especially in the field of artificial intelligence, financial regulators began to seek research and development models in cooperation with financial institutions such as banks and financial technology companies. This model promotes the scientific and technological upgrading of the regulatory agencies. On the one hand, it can save R&D costs, shorten the R&D cycle, and avoid restrictions on R&D by human or economic costs. On the other hand, it can follow the regulatory technology construction of the compliance terminal in real time to ensure its legality. Reasonable and orderly advancement, to play a certain degree of supervision in the past. Since the important purpose of the use of regulatory technology by financial regulators is to improve the efficiency of supervision and to supervise and supervise the regulated institutions, it is easier to find problems in the process of cooperation with the regulated institutions. Guide the ground and timely, and help them to complete the supervision and technology construction of the compliance end. For example, Nasdaq and Citigroup are working together to announce the creation of a new global payment solution that Citi automatically handles cross-border links through the CitiConnect for Blockchain connection platform and the Linq platform supported by the Nasdaq Financial Group. Pay. The two institutions use their unique regulatory technology platforms to provide new possibilities for inter-bank cooperation and play an important role in promoting regulatory efficiency.
Trend 3: Blockchain technology has become an important part of regulatory technology
Blockchain technology has been further developed and applied in the field of financial supervision (such as smart contracts, intelligent regulatory reports, etc.), and has achieved significant application effects in mobile payment, securities, insurance, bills, and data validation. Using the blockchain as an auxiliary tool for existing supervision, as the basis for building a trust mechanism, rather than overthrowing the existing centralized regulatory network, the trend of establishing a distributed network with the blockchain as the bottom layer is becoming more and more obvious. For example, BARAC, a project that FCA plans to implement in the future, is investigating the possibility of using blockchain technology for automated regulation and compliance. IBM has partnered with CLS, a foreign exchange market infrastructure company, to create a platform called Ledger Connect, a conceptual platform specifically designed for financial services organizations. Its goal is to apply blockchain technology to a variety of financial sectors. So far, nine financial services institutions, including Barclays Bank and Citibank, have participated in the verification and testing of this concept platform. Companies such as Deloitte also seized the opportunity to increase the blockchain's investment in regulatory technology. For example, through blockchain technology, Northern Ireland Banks can meet the compliance requirements of the EU Financial Market Regulations and integrate their business data. Establish a blockchain distributed reporting system. This has led to the establishment of cross-links between departments within the bank, between banks and other financial institutions, and the transmission of statements and data between nodes.
Trend 4: Data governance in the use of regulatory technology continues to strengthen
The importance of data in the use of regulatory technology has become an industry consensus. To avoid regulatory difficulties caused by data problems, the exploration of data governance models has become the core of research. Data is the foundation of regulatory technology, and the data used in regulatory technology may come from within the regulatory body or from many regulated institutions. For example, the National Bank of Rwanda uses the “data stacking” method to capture from the IT systems of regulated financial institutions such as commercial banks, insurance companies, microfinance companies, pension funds, foreign exchange institutions, and telecom operators through “electronic data warehouses”. data. So in this process, what data can be captured, which data can not be captured, who has the right to crawl, how to use after the capture, in what scope, whether it involves business secrets, citizen personal information, which Data leakage prevention measures need to be regulated and guaranteed through certain laws or regulations. At present, data ownership and use are still a problem, and further research and confirmation are needed. The United States has explored this aspect. For example, the second part of the Financial Transparency Act (2017) sets the SEC's data standards to guide the SEC's data-related work, which uses company-readable information for machine-readable data. The disclosure report has been specifically regulated. The request shall be submitted no later than six months after the date of promulgation of the Act, and every six months thereafter, the Commission shall submit a report to the Financial Services Commission of the House of Representatives and the Bank, Housing and Urban Affairs Committee of the Senate on how to use machine-readable data. Company disclosure. In this report, it is necessary to explain what information in Article 7 of the Securities Act of 1933, Article 13 of the Securities Exchange Act of 1934 or Section 14 of the Securities Exchange Act of 1934 is machine readable. Ways to disclose, which can't be information.
Trend 5: The role of regulatory technology in regulatory decision-making needs to be clear
While regulatory technology is constantly being raised, how to deal with the relationship between regulatory technology and regulatory decision-making is key. In particular, the status and role of regulatory reports derived from the collection and analysis of data by regulatory technology should be further clarified to avoid the resulting contradictions and ineffective inputs. For example, the National Bank of Rwanda combines the monitoring data generated by automatic monitoring with internal system data to provide information to regulators and decision makers. The Dutch bank and the Monetary Authority of Singapore use visualization tools to treat large amounts of dense, complex data. Presented to the regulator in an easy to understand way. Such reports are used as an auxiliary reference material, or as a necessary factor for regulators to make decisions, or a way of judging their credibility, which needs to be clarified. Otherwise, it may cause the input and output to be inconsistent, affecting how much the regulatory technology can play and whether it can really improve the efficiency of supervision. The Financial Transparency Act (2017) provides that the SEC needs to analyze the costs and benefits of using machine-readable data when disclosing company information to investors, markets, committees, and issuers, and how the analysis committee itself uses the collected machines. Readable data.
Trend 6: The process of institutionalization of regulatory technology is accelerating
With the continuous deepening of the use of the regulatory authorities, the institutionalization of regulatory technology is gradually on the agenda. For example, in October 2016, the US Securities and Exchange Commission (SEC) voted to adopt the “Investment Company Report Modernization Rules” to promote the more modern information disclosure of registered investment companies. Under the new rules, after June 1, 2018, most funds will be required to begin submitting new forms of N-PORT and N-CEN reports; funds with a net worth of less than $1 billion will be available on June 1, 2019. Submit the N-PORT report after the date. The new rules will strengthen data reporting for mutual funds, ETFs and other registered investment companies. Under these rules, the Registered Fund will be required to submit a new monthly portfolio report form (Form N-PORT) and a new Annual Report Form (Form N-CEN). This information will have to be electronically documented in a structured data format through the Securities and Exchange Commission's EDGAR system, which will enable the committee and the public to better analyze the information. The rules will also require enhanced and standardized disclosures in the financial statements and will add new disclosures to the fund registration statement related to the fund's securities lending activities. It can be said that the institutionalization of regulatory technology will become an important guarantee for the standardization of data governance and the clarification of regulatory science and technology decisions in the use of technology.
Trend 7: From “Technical Assistance” to “Intelligent Supervision”
At present, the development of regulatory technology in China is in full swing. From the central to local regulatory authorities, from top-level design to concrete practice, it has revealed the importance attached to regulatory technology. In August 2018, the China Securities Regulatory Commission officially issued the "China Securities Regulatory Commission Supervision and Technology Overall Construction Plan", providing an official and well-considered design blueprint for "regulatory technology." Local financial offices have also strengthened supervision and technology deployment and made major breakthroughs. However, it needs to be clear that at this stage, although many regulatory technologies use the concept of “intelligent supervision”, from the actual situation, there is still a long way to go from the “smart” in the true sense, and it still belongs to the category of “technical assistance”. Not AI (Artificial Intelligence), but IA (Intelligent Assistant). On the one hand, it is people, not machines, that really make regulatory decisions. The results provided by the machine are only for reference—that is, they can be fully adopted, partially adopted, or not adopted. On the other hand, supervisors call related functions according to the purpose of supervision to obtain relevant analysis results, rather than being called and analyzed by the machine. But what is certain is that the introduction of more technological elements and intelligent elements in regulation is the general trend. The ultimate intelligent supervision can also be expected, and the degree of participation in technology and intelligence is a problem worthy of discussion in law. The operation of regulatory technology must always be carried out within the legal framework of financial supervision. It must follow the basic legal principles of supervision, and must be based on regulatory laws, and must also clarify the corresponding rights, obligations and responsibilities.
Trend 8: Challenge the traditional regulatory accountability mechanism
Traditional financial regulation emphasizes the procedural principles of regulation. It is particularly evident in the inspection process of financial supervision. For example, the provisions of Article 181 of the Securities Law are subject to supervision, inspection or investigation. The number of personnel for supervision, inspection and investigation shall not be less than two and shall be legal. Documents and supervision inspections, investigation notices. The basis and results of supervision also need to be disclosed. For example, the Securities Law stipulates that the basis for securities supervision should be made public; the decision on penalties for securities violations based on the investigation results should also be made public. However, in regulatory technology, especially when it comes to the stage of intelligent supervision, more regulatory actions are made through “self-execution” such as machine learning, which is also likely to cause regulators to “do not act” or “disorder”. question. That is to say, the traditional supervision law is incompatible with some behaviors in the supervision of science and technology, so it is necessary to reconsider how the developers and users (regulators) of technology allocate their rights and obligations. In December 2018, the CSRC issued the "Measures for the Management of Information Technology of Securities Fund Operating Agencies", of which Article 7 stipulates: "The securities fund operating institutions shall improve the mechanism of assigning powers and responsibilities in the process of using information technology, and establish and improve the information technology management system and The operational process guarantees the level of information technology investment that is compatible with the scale and complexity of business activities, and continuously meets the requirements for the availability, security and compliance of information technology resources. The “Measures” put forward the powers and responsibilities in the application of information technology. The requirements for distribution can be seen as a precursor to the use of regulatory technology by future regulators.
(This article is the phased result of the 2018 National Social Science Fund General Project “Research on the Legal System of Financial Supervision Based on Big Data” (18BFX137). The author is a researcher at the Center for Law and Policy Research of Jingdong Digital Science and Technology Research Institute and a master of law at Central University of Finance and Economics. Graduate student Silver Danny also contributed to this article; Editor: Su Qi)
The original title " The Eight Development Trends of Regulatory Technology "
Text | He Haifeng
Source "Finance Magazine"