The combination of regulation and technology known as regtech was the topic du jour at this year's Institute of International Affairs conference held lin Bali last week.
At the conference, Christopher Woolard, executive director of strategy and competition at the UK’s Financial Conduct Authority said regtech is helping the watchdog to identify and source misconduct more quickly.The FCA’s hit rate has climbed from 10 per cent to 70 per cent as a consequence.
Woolard explained to conference goers that the market watchdog spends “a lot of time and effort in this space” working with tech specialists on compliance-related tools.
The official told the conference that they aim to make compliance and regulatory reporting simpler and more efficient for the companies they regulate.
“The forward IT pipeline for FCA-regulated technology companies is essentially compliance work which is not the necessarily the healthiest state of affairs with technology moving at the pace it is now," he said.
Woolard told the conference that combating financial crime is ripest area for regtech and that a huge amount of effort is going into anti-money laundering.
The UK spends more than US$6.5 billion annually on deterring money launderers, according to the FCA operative.
To put that in context, he told the conference that the UK spends US$5 billion on the entire prison system.
Worse, Woolard points out that the UN estimates that only 1 per cent of money laundering is being picked up, detected and dealt with.
Aside from trying to reduce the regulatory burden for companies, he spoke about "genuine transformation" where technology allows the FCA to do things that historically it could not do - like real-time supervision.
Whole of market
"The technology allows us to stop sampling, and look at whole markets and finally it allows to get into it allows you to get into spaces that were seen as intractable problems -too hard to solve," he said.
"The ability for us to define problems earlier and find the bad actors in the system is very important.”
Woolard provided an example of a pension product where people might not realise they had been sold a bad product until 20 years after the event.
“We have a problem in the industry with what we call rolling bad apples – advisers who have essentially moved from firm to firm to firm. Often people realise they are not that great but don’t want to create a fuss and so these guys wander around the system for many many year leaving a trail of chaos behind them," he said.
“Today’s technology now begins to give us a chance to find these guys much earlier, by bringing together a number of data sets that we historically just haven’t access to such as where is advertising spend is really going, what products are being pushed into the market as well as the turnover of company board members or compliance officers.”