2019 might see the beginning of a new era of regulatory technology

Even in normal times the life of regulators is not easy. The 2008 financial crash is a good example of how clever new financial instruments escaped scrutiny of regulators and led to a global crash. More than a decade later, the life of regulators have become even more complex. The rising use of technology in pretty much every sector means that sectoral regulators need to be up to speed. Not just the financial markets regulators, industry, anti-trust regulators and utilities are now leaning on technology to improve their understanding of a fast-changing world. 

A study by Research and Markets estimates that the global regulatory technology market will rise from $2.3 billion in 2018 to $7.2 billion by 2023. This would be a CAGR of over 25 per cent in the period. This use of technology is not just for regulators but for the regulated as well. Companies facing new regulations will need new tools to manage compliance. 

“The solutions include compliance management, reporting, identity management, and risk management. The compliance management solution segment is expected to grow at the highest CAGR during the forecast period…The traditional compliance tools are not found to be effective to respond to regulatory changes in recent times. With the major focus of governments across regions with GDPR guidelines, RegTech is expected to majorly impact the financial service organisations. With an increased focus on data protection rules, organisations need to strictly adhere to compliances and monitor transparency in money transactions as laid down by the regulatory bodies to avoid huge penalties,” says the report. 

As companies use more tech, so will regulators use data analytics and such to track market behaviour. As compliance rules change to factor in the new dynamics, companies will have to use another set of tools for compliance. Most regulators now expect companies to be updating them in real-time to reduce delays. The Securities and Exchange Board of India has made a big push for using data science to be on top of the Indian financial markets. Its data analytics team will work on “monitoring of mutual funds, automation of inspection of brokers, development of APIs to share data with regulators and build analytics on securities market data.”

The Bombay Stock Exchange is also leaning on similar tools to track market rumours that impact and misinform investors. BSE says that it gathers data from online chatter about market whispers. Its software analyses the information to check it against available facts. In cases where information does not seem to match public declarations, BSE sends alerts to the relevant company for clarification. A rapid response time and constant vigil on social media chatter helps curb rumours that are often manufactured for gullible investors. 

Anti-trust and privacy bodies are tense about the big tech companies that are far more sophisticated than the regulators. Assessing anti-competition practices, tracking online consumer rights and predatory behaviour can’t be done without smart tech. For example, if a regulator has to assess how much discount for products is acceptable for online sale, it will have to assess the market prices across several stores. It will have to match data of brick and mortar stores with generally accepted discount norms. This may have to be done for thousands of products and specific versions. 

Countries like India will have to depend on large coordinated data pools for financial and other markets. An effort to this end will help increase transparency, accountability and fair play in the ecosystem. For India, this is especially important because of the sheer scale of consumers. This year could see the beginning of a new era for regulation technology.