Simply put, if RegTech is implemented correctly, it can help banks improve efficiency, optimise costs, while delivering enhanced experiences for customers - all of which contributes to business growth.
Some Asian central banks receptive to RegTech
Even though it is still early days for RegTech, some central banks in Asia have taken initiatives to encourage its growth and adoption.
For instance, the Monetary Authority of Singapore (MAS) introduced a regulatory sandbox last June to enable startups as well as financial institutions to "experiment with innovations in a live environment without disrupting the entire banking system," said Greg Knieriemen, Chief Technology Strategist at Hitachi Data Systems.
He added that Hitachi and Bank of Tokyo-Mitsubishi UFJ (BTMU) is using MAS' sandbox to test the use of blockchain technology to issue and settle checks in Singapore. The test aims to identify issues from various perspectives such as technology, security, operation, and legal.
Similarly, the Hong Kong Monetary Authority launched the Fintech Supervisory Sandbox last September to facilitate fintech trials of authorised financial institutions before they are scaled up. Just two months after its launch, two banks applied to test the use of biometric authentication for securities trading in the sandbox.
Besides offering sandboxes, Asian regulators need to tweak existing regulations to enable banks to adopt and benefit from RegTech. "RegTech requires a number of other technologies such as the cloud, in order to be viable. The MAS has made changes to the outsourcing requirements to enable the cloud to be used. We heard that regulators in Australia and Hong Kong are following suit and planning to enhance their own outsourcing requirements," Davis shared.
Agreeing with Davis, Phillipps said: "[Asian central banks] need to create an environment in which innovation and designed experimentation is encouraged and rewarded. They need to be a partner in the development, not simply an observer."
What to look out for before adopting RegTech
When asked what needs to be done before adopting RegTech, Davis advised banks to first understand the regulatory landscape and initiate proactive discussions with regulators around grey areas.
"For instance, approaches utilizing forms of artificial intelligence may seem like a black box because the machines learn on their own, unlike traditional methods that may be more transparent though are limited in scope or application," said Davis. This makes regulators uncomfortable as it is not clear as to how the machines derive their conclusion, even if they are more accurate. "So banks and regulators need to come together and understand how it works and affect existing back-end systems, as well as discuss about the types of controls to put in them [before embracing such technologies]."
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