Speaking on fintech trends in 2017, Scott Morrison argued that regtech will be a catalyst to advance financial services.
Australian Treasurer Scott Morrison has told central banks governors and finance ministers in Germany, that the G20 can no longer afford to ignore the opportunities of Regulatory Technology (regtech), announcing lower costs and higher protections as key tenants in Australia’s new “Regtech Mission.”
In the Treasurer’s first declarative speech addressing fintech in 2017, Morrison highlighted the potential of regtech as a catalyst to advance financial services.
“In a world of mounting cynicism and growing mistrust, our institutions must find ways to build trust with their customers and the community,” Morrison said.
Citing the challenges posed by the financial crisis and subsequent corporate scandals, the Treasurer said the response of governments around the world had been to raise the bar for behaviour and risk management.
“However, a side effect is the heavier compliance requirements on business, especially those in financial services,” he noted.
Relevant to Government
According to industry regulators, financial institutions are spending more than US$70 billion on compliance annually, and the costs for compliance and governance software across the global industry are expected to near US$120 billion by 2020 — more than half of which will occur in consulting and business services.
For these reasons, Morrison said, the time is now for governments to consider how to “implement regulation in lower cost ways through the use of regtech.”
“The benefits of these new technologies are relevant to government and financial regulators – and we cannot afford to ignore the technological innovations being embraced by the financial sector," he added.
Morrison said regtech can better assure regulatory goals, while avoiding negative effects on productivity, competition and innovation, while delivering lower costs and more reliable protections for both consumers and the economy. “In Australia, that is our regtech mission,” he said.
The Treasurer said the Australian Transaction Reports and Analysis Centre (AUSTRAC), “our financial intelligence agency,” has begun developing ways to collaborate with industry through regtech initiatives to “deliver more effective and efficient compliance outcomes.”
“In the online and digitised world, de-risking and de-regulating an environment can actually go hand in hand. Regtech can provide enhanced regulatory compliance by building it into an organisation's key business practices and operations," Morrison said.
“As consumer expectations and commercial offerings are changing and advances in fintech place new pressures, our risk, regulation and compliance systems need to adapt and evolve.”
'Victim of fear'
Morrison added that the regulatory technology of fintech can combine compliance, risk, business strategy and corporate culture objectives to drive performance.
According to the Institute of International Finance, monitoring payments transactions, automation of trading financial markets, 'know-your-client' requirements and risk data aggregation, are all areas of compliance and regulatory reporting that could benefit from the development of regtech solutions.
“Adopting these newer technologies has flow on effects for the organisations themselves in helping to manage and understand their own operational, trading, credit, payment and reputational risk.
“But there are also benefits for financial regulators and policy makers – improved data capture and analysis should enable better intelligence and supervision of risks in the sector,” Morrison added.
The Treasurer said that while “there are undeniable risks” in enabling data to become more widely available, “it's important that new technologies do not become a victim of fear.”
In this regard, major banks’ and public concerns about privacy, prompted by greater access to and use of data need to be balanced against “the dynamic nature of fintech” and “the limitations of governments and regulators” to be prescriptive in an environment of shifting regulatory and technological sands.
He described this as the challenge of achieving 'principle-based' versus 'rule-based' regulation. “Principle-based regulation allows us to focus on achieving the regulatory outcome that matters to us, rather than focusing on compliance with prescriptive rules.”
Morrison said regulators and financial firms can too often fall into the trap of trying to specify a rule that may then limit possibilities or close off adoption of new technologies or business models.