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RegTech and SupTech: the two faces of the compliance

Read in ITA

Supervisory Tech: the next frontier for financial authorities

Our journey into the world of RegTech comes to a very related field, which can be presented both in parallel and in opposition to the RegTech itself. We are talking about the so-called SupTech, word that stands for Supervisory Technology.

In our path so far we have talked about the RegTech market, focusing on its current dimensions, its growth prospects and its bright future, suggested by the constant increase of the compliance costs, coupled with the growing interest in technological solutions for this business area.

SupTech and RegTech: a common path…

To describe what SupTech is, we can refer to a report by the Financial Stability Board (October 2020), saying that it includes all of that new technologies which are applied to help authorities improve their supervisory capabilities, while we can consider RegTech as the set of technological tools which institutions use to meet their regulatory requirements. As already described in our previous episodes, after the 2008 financial crisis authorities and regulated institutions have both got more and more interested in these technologies to help them manage the ever growing regulatory requirements that were emanated.

Taking into account the constant growth of regulations issued both by international and national financial authorities, SupTech and RegTech tools can ensure great benefits for financial stability. On one hand, the use of SupTech can help authorities improve oversight, surveillance and analytical capabilities, also generating real-time indicators of risk. On the other hand, regulated institutions can use RegTech to get better compliance outcomes, enhance risk management capabilities and generate high-level insights for improved decision-making.

… and a common growing trend

The extraction and analysis of regulatory data put on the same level both SupTech and RegTech, as their common operations and needs underlie their common growing trend. In fact, these two business areas are often enclosed – quite loosely – in the general category FinTech. Adopting for convenience this term, a recent report by PWC confirms that global investments in FinTech solutions are increasing (+71% in 2019 compared to 2018), even if Italy is still in contrast with this trend (-22%), due to a delay in keeping up with technologies such as the Machine Readable and Executable Regulations (MRERs).

In this field, the UK represents the driving force, since its RegTech Sprint in 2017. By adopting the MRERs, regulations can be analyzed automatically and in real-time, allowing the “elimination of the need by institutions to interpret the legislation if not sufficiently clear, or the possibility of misinterpreting it otherwise” (source: EBA response).

Also the G20 has started a TechSprint on the Regulatory Reporting and Ensuring Compliance, aiming to support the use of new technologies to meet the operational needs both in the regulatory complianceRegTech – and in the supervision – SupTech – fields. Besides, the creation of the Hub FinTech of Banca d’Italia in Milan indicates that even in Italy the direction is traced: the future of banking compliance is tech-based.

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