Pioneering the next generation of digital financial supervision tools and techniques

RegTech for Regulators Accelerator

Expertise Area

Policy and Ecosystem Development

Client Name

The Bill & Melinda Gates Foundation, Omidyar Network, USAID

Country

Global

R2A, the RegTech for Regulators Accelerator partners with leading financial authorities to pioneer the next generation of digital financial supervision tools and techniques. Partner financial authorities want to better monitor and supervise financial marketplaces that are increasingly digital. R2A helps them accelerate this capability. By addressing common challenges to the adoption of new technology, R2A provides a structured approach to help financial authorities reimagine how they operate.

We believe the future of financial regulation, supervision, and policymaking lies in using technology and data to improve the speed, quality, and comprehensiveness of information in support of targeted, risk-based decision-making. We also believe a RegTech approach can reduce the cost of compliance for financial institutions and increase consumer trust and participation in the system.

Problem Statement

The rapid growth of inclusive digital finance and tech-oriented innovation makes many traditional financial regulatory and supervisory approaches insufficient for marketplaces that now look quite different than they once did. This unprecedented expansion in financial services comes at a time when financial sector authorities are already faced with stronger requirements to maintain the stability and integrity of the financial system in the aftermath of the financial crisis and in the shadow of increased scrutiny of terrorist financing and money laundering. Financial sector authorities need to meet Financial Action Task Force (FATF) requirements, for example, and are answerable to a range of similar standard setting bodies. The Financial Integrity Units (FIUs) of most central banks in emerging markets, however, have not kept up with the expanded market supply and new DFS actors. Some FIUs face a massive, possibly a multi-year backlog of cases, with floor to ceiling paper records in storage closets. Because financial sector authorities are under pressure they transfer that burden to providers. In United States and some European markets, the compliance costs for some banks can be an additional outlay of billions of dollars per year.

There is also a shift towards risk-based supervision. However, to be effective at risk-based supervision, as most financial sector authorities will acknowledge, you need to be effective at analyzing data. It is only through the analysis of data that financial authorities can prioritize with greater fidelity which areas or institutions need greater scrutiny and which do not. Most emerging market financial sector authorities are not yet prepared to make the best use of the data that is submitted by DFS providers on weekly or monthly basis. This data could be used to understand risks, profile sectors, compare trends, and assess the impacts of different policy options, thereby establishing a body of knowledge and evidence that drives policy reforms. This data can also be aggregated with consumer-sourced data to capture a holistic picture of the market and identify appropriate and targeted actions with the application of digital-first approaches that take advantage of progressively data-rich environments.


 

The Solution

Launched in October 2016, R2A is partnering with a select set of leading financial authorities to develop and test next-generation RegTech prototypes that could serve as examples for other supervisors and regulators to follow. R2A also engages closely with technology innovators, creating structured opportunities for innovators to propose solutions and collaborate with financial authorities in the design and testing of promising ideas.

R2A’s twenty-month program consists of three phases:

  • Months 1 to 6 – Defining the opportunity: Assessing partner financial authorities needs, selecting a specific area of opportunity, and defining the requirements of potential solutions.
  • Months 7 to 10 – Identifying potential solutions: Engaging innovators to crowdsource innovative ideas and the underlying technical requirements to meet regulatory needs.
  • Months 10 to 20 – Testing prototypes: Co-design, development, and testing of ideas between financial authorities and innovators.

 

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Updated January 2017