Innovate Finance, an association that represents the UK’s global Fintech community, together with its strategic partner Hogan Lovells, is reviewing the “potentially transformative role” of regulatory technology or Regtech. Specifically, they are reviewing the highly fragmented US financial regulatory environment – one that stifles innovation and adds unnecessary cost to consumers and businesses.
The Transatlantic Policy Working Group (TPWG) is a group of Fintech, public policy, financial services and academic stakeholders designed to help advance policies that foster responsible Fintech innovation. TPWG is seeking to publish research on the role of Regtech as a mechanism to address the increasingly complicated US financial regulatory environment.
It is true that regulation may improve standards, enhance protection and engender trust and confidence amongst consumers. However, cumbersome regulation may also have the unintended consequence of stifling innovation, efficiency, and productivity within financial services.
Recent research compiled by George Mason University’s Mercatus Center attempted to quantify this regulatory burden and concluded that complying with new regulations costs individuals and businesses in the United States approximately $4 trillion a year. If you bring this amount down to the individual level, each US citizen is paying approximately $13,000 per year due to regulatory inefficiencies.
Reviewing the US financial services sector, Innovate Finance points to the American Bankers Association and the claims that 46% of banks have scaled back their efforts to grow loan and deposit accounts partly as a consequence of increased resource allocation & spend on compliance with regulation.
The increasingly complex interplay, and overlapping responsibilities, between federal and state regulators, also provides challenges for US financial regulators, where a fragmented environment suggests efforts to encourage greater collaboration, transparency, and clarity may yield more effective management of systemic risk.
Daniel Morgan, Director of Policy and Regulation at Innovate Finance, explains their vision;
“From more efficient methods of sharing data – such as the development of shared utilities, to encouraging better decision-making by regulators through real-time risk and fraud monitoring, Regtech could help provide a multi-faceted solution to tackle regulatory complexities and inefficiencies in the US financial services sector”.
TPWG will publish a review of the potential of applying Regtech and how it may instruct the US Administration’s broader discussion on the impact of burdensome financial regulation.