Hogan Lovells and Innovate Finance launch Transatlantic Policy Working Group paper on “The Future of RegTech for Regulators”
By Richard Schaberg, Hogan Lovells
Loyal T. Horsley, Hogan Lovells
On Friday, June 23, 2017, Hogan Lovells and Innovate Finance launched their white paper, “The Future of RegTech for Regulators: Adopting a Holistic Approach to a Digital Era Regulator.”
This paper is the culmination of meetings of the Transatlantic Policy Working Group (TPWG) this year. Regulatory technology, or “RegTech,” is generally considered a subset of FinTech and most of the conversation has been about the integration of technology into regulated entities to streamline compliance obligations. As financial institutions, both bank and non-bank, are among the more regulated entities in the US (and globally), RegTech innovations have been especially noteworthy to them.
In our paper, we discuss another way in which RegTech can impact financial services: integrating it into the financial regulators. The US financial regulatory system is among the more complex and interwoven, with each federal regulator having certain entities or behaviour it supervises and regulates. That’s not even counting the state regulators, which have been proactive in adopting FinTech-specific guidance. Our paper outlines three approaches, which can be used alone or together, to integrating RegTech into regulators: (i) the ecosystem approach, (ii) the digital financial infrastructure approach, and (iii) the rule and process change approach.
Currently, US regulators are mostly using the ecosystem approach; creating a positive environment for technological innovation. This is best illustrated by the creation of innovation-specific offices or teams at the OCC, the CFPB, and FINRA. Revising and implementing Digital Financial Infrastructure is a longer process, but the US is working towards it: the Federal Reserve has a team looking at how best to update the US payments system. Rule and process change tends to require legislative action, so it may be the slowest moving approach. However, regulators and states have been active in reviewing legal and regulatory requirements that may need to be amended to allow for digitization, as well as other rules that may be rendered moot by the move to digital.
Hogan Lovells hosted a RegTech Summit at our DC office on Friday to launch the paper, with a keynote address from Jonah Crane, Former Deputy Assistant Secretary of the Department of Treasury, and current Regulator in Residence at FinTech Innovation Lab. We also had a panel of regulators (representatives from the Federal Reserve, the OCC, and the CFPB), as well as a discussion of sandboxes and their utility.