The Cambridge Centre for Alternative Finance (CCAF), Cambridge SupTech Lab, has published a report on the emerging arena of supervisory technology (Suptech) that aims to improve the regulation of financial services firms. While some view Regtech and Suptech as two sides of the same coin, CCAF’s inaugural State of SupTech Report 2022 targets specifically the current state of digital technology from the perspective of regulatory agencies worldwide.
This newest report surveyed 134 financial agencies in 108 different jurisdictions. CCAF has long been the leading research entity chronicling the development of financial technology (Fintech) and its application globally. At the same time, there is broad participation from regulators, there are notable omissions. The US Securities and Exchange Commission, US Federal Reserve, Commodities Futures Trading Commission, and other regulators are not on the list. The sole exception is the US Consumer Financial Protection Bureau (CFPB). These ommissions are unfortunate but most likely driven by the current leadership of these bureaucracies, which can be parochial.
According to the report, most financial regulatory authorities are already engaging in Suptech – something that should come as no surprise; 71% of financial authorities reviewed are adopting Suptech strategies and technologies.
The vast majority of Suptech is currently focused on consumer protection, with 59% battling fraudsters and nefarious activities, according to the report. 58% of the applications in use support prudential supervision use cases.
More developed countries or “advanced economies” (AEs) are early adopters with emerging markets, and developing economies (EMDEs) are reviewing tools for training, technical assistance, and digital tools while seeking funding primarily for the development of Suptech.
To coordinate activities, 35% of surveyed entities have a dedicated executive or “Chief Data Officer” to manage these new activities.
The majority of Suptech services are developed by outside vendors as opposed to in-house creations.
The report takes pains to devise a lexicon of terms to utilize going forward while providing a brief history of the development of Suptech – starting in 1987.
There is also a section of case studies providing current, real-world insight into regulators leveraging technology to accomplish better outcomes.
In the conclusion section, the authors describe Suptech modernization as a “journey” and not an event. Clearly, in the early stages of development or the “experimentation stage.”
Three insights distilled from the research include:
- Recently, more financial authorities have formed dedicated teams or units to lead suptech deployments.
- Senior management is giving to suptech are all positive building blocks for the definition of strategies and roadmaps.
- Agencies are increasingly conducting rapid, iterative test-and-learn cycles on new technologies and process innovation.
Challenges beyond the expected funding and resources include cultural resistance to change.
The report concludes:
“Through continued investment in addressing the use cases and challenges identified in this Report, suptech applications will become applicable and portable to the needs of a growing set of supervisors within and across agencies and jurisdictions. Thus, financial authorities must prepare themselves to intentionally and strategically harvest the bountiful crop of valuable lessons and resources from today’s existing suptech initiatives, to consume the resources to address their own needs by building and procure tomorrow’s suptech solutions, and to plant the seeds for new growth in the broader suptech ecosystem by sharing back their own successes, lessons learned, and digital resources.”
The report does touch on the fact that most vendors view Suptech as an offshoot of Regtech and complementary to their main business. While any country has one or several regulators – there are thousands of financial services firms looking to streamline compliance and growing regulatory demands, and new tech is the path. The natural pairing of Regtech/Suptech will require forward-thinking policymakers and regulators that recognize the benefits while acknowledging the shortcomings along with obvious risks.
The report is available for download here. It is an informative read and should be required reading for all financial regulators.