Integrating RegTech into the U.S. financial regulatory system

Hogan Lovells and its strategic partner, Innovate Finance, an independent not-for-profit membership association representing the UK’s global FinTech community, have begun working on a white paper on RegTech, the subject of the 2017 Trans-Atlantic Policy Working Group (TPWG).  RegTech is a subset of FinTech that focuses on technologies that may facilitate compliance and understanding of regulatory requirements more efficiently and effectively than existing capabilities. In March, Hogan Lovells hosted the first 2017 session of the TPWG to address how RegTech can be integrated into the U.S. financial regulatory system, especially on the regulators’ side. Hogan Lovells and Innovate Finance also met with several regulators and Congressional staff to determine both the appetite for RegTech and the potential roadblocks to its integration.

On April 27, Hogan Lovells will host a second roundtable event in New York, as part of FinTech Week NYC.  We will be discussing our forthcoming white paper, which will provide a “toolkit” for regulators to integrate RegTech solutions into their supervision and examination functions. A “RegTech for regulators" approach could help provide a multi-faceted solution to tackle regulatory complexity inherent in the US financial services. By digitising the regulatory architecture, RegTech could also support a less burdensome approach to financial regulation as technology encourages transparency, addresses asymmetries and empowers consumers, market participants and regulators to better manage risk. U.S. regulators have been encouraging in our discussions with them.  They are interested in FinTech, generally, and RegTech, specifically, in order to better keep abreast of the ongoing changes in the industry.

Regulators have to be comfortable with the technological changes proposed by new banks, both for new products and services and for updating legacy systems.  Because the federal regulators are often chronically understaffed (and currently under a hiring freeze), they sometimes do not have the technical knowledge or wherewithal to properly review and understand new FinTech offerings. That means consumers and industry may be denied access to innovations that could have the potential to increase access to financial services or simply create a more efficient experience.  Integrating RegTech into U.S. financial regulatory system, both from the regulator and the industry side is a mutually beneficial goal.   

On June 23, Hogan Lovells and Innovate Finance will release the RegTech “toolkit” and host a panel of regulators and other experts to discuss bringing RegTech to regulators and ensuring the U.S. is not left behind in the path toward financial innovation.

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