New Industry Proposal Calls for Support From Regulators to the RegTech Sector in the UK

Innovate Finance, the industry body for UK FinTech representing the RegTech community, together with the City of London Corporation, have today released a new report calling for the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to introduce a ‘RegTech Test’ to help assess how technology can best enable regulatory compliance, and discusses a wider range of regulatory initiatives when considering the policy impact on compliance technologies. The report, entitled “RegTech Test: Identifying the Policy Impact on Compliance Technology”, is a collaboration involving a wide range of industry participants, including Goldman Sachs, Encompass Corporation, Eigen Technologies, and KPMG. According to Bloomberg, the global market for RegTech could reach a valuation of $87 billion by 2028, and the report underscores that the UK has an opportunity to become a leading global RegTech hub, and that adoption success stories will be crucial in reaching this valuation. The key elements highlighted within the proposal include:

• Introduction of Compliance Technology Impact Assessment – to be introduced at each stage of the policymaking process, as a way of inviting or consulting with the industry to understand at a high level what some of the significant impacts of the proposed rules might be.
• Formation of a Compliance Technology Policy Working Group - proposal for the PRA and FCA to each create a Working Group consisting of technology representatives from a range of financial institutions (in terms of size and type of firm).

The three main benefits identified as part of the implementation process are:

• The creation of a ‘learning loop’ between regulated firms, vendors and regulatory policy makers regarding policy impact on compliance technology and new innovations that could better meet regulatory objectives.
• Engaging regulated firms on their policy-making process earlier to ensure consideration of the impact of new policies on their existing technology sooner, allowing more time for strategic approaches to technology change.
• Reducing the cost of compliance by avoiding duplication of requirements e.g. through the use of existing industry data standards and / or the re-use of extant reporting processes. A recent report by LexisNexis Risk Solutions found that the total spend on financial crime compliance alone across UK financial services in 2022 was £34.2 billion per annum, an increase of 19% from the £28.7 billion reported in 2020.
• Both the PRA and FCA have been at the forefront of technology innovation, with the FCA establishing the world-leading Regulatory Sandbox in 2016 and the joint Digital Regulatory Reporting project.

Innovate Finance has been a strong advocate of the importance of attractive and strategic policies to support firms achieve and improve compliance using regulatory technology. Janine Hirt, CEO of Innovate Finance, said: “The UK’s regulatory framework has long stood as a key reason for the success and widespread implementation of innovation and technology in the financial services sector. RegTech is fast emerging as a key growth opportunity for the UK, and we look forward to working with government and regulatory bodies to develop the new systems and solutions outlined in this report to unlock even further forward progress. Chris Hayward, Policy Chairman at the City of London Corporation, said: “One of the key drivers of our success as a global financial centre is the strength of our regulatory frameworks within an agile and receptive business ecosystem. RegTech offers a prime opportunity for the UK to boost its competitive edge and take a leading position as a hub for fintech innovation that is in step with the pace of global digital transformation. Working alongside the Government and regulatory bodies, we can unleash the full potential of the systems and solutions this report recommends.”