Regtech Rising – How far are we from Robo Regulators?

Since the AI boom, there have been several stories about people losing jobs. Repetitive jobs are the ones that are most suited for robots to take over. So would there be a time when we get to tell the Regulators “You are Fired”?

Regtech had a phenomenal year 2017, with global funding reaching $1.1 Billion across 81 deals. And the first half of 2018 alone saw funding go past $1.3 Billion across 36 investment deals (KPMG Research). Thanks to an avalanche of regulations that banks had to comply with from PSD2, GDPR, MiFID2.

KPMG Research

Since the 2008 financial crisis, banks have paid $321 BILLION in fines

 CB Insights

The SEC allocated $1.78 Billion to employ 4870 who were making sure Banks were compliant. Now, with the rise of AI across the regulatory value chain, the efficiencies to be had are immense with intelligent automation. 

With an ocean of regulatory text to go through, and with several regulatory alerts to monitor on a regular basis, AI would be the way forward. I remember my Barclays days when there were several vendors claiming to make regulatory reporting easier through a workflow solution.

And why AI Can Help

When I was at PwC, we started exploring solutions like IBM Watson for regulatory and legal language parsing. Regtechs were getting more and more intelligent, and with the amount of capital that was flowing into this space, they had to. Thanks to those efforts, there are several players to proactively identify and predict risks.

As more innovation happens in this space, ease of use moves on to automation, and automation to intelligent automation. We also have started to see regulation specific solutions. Many of them existed in their simplistic form before, but they now come with better technology. Open banking has had a few focused Regtech solution providers like Railsbank. Droit provides post trade reporting for OTC transactions as per MiFID 2.

The SEC’s proposed 2017 budget is $1.78 BILLION

 CB Insights

This trend can further go up the value chain, and apart from serving banks, technology could serve regulators. Regulators have to parse through tonnes of data, use pattern recognition, NLP and predictive analytics to identify breaches proactively. Regulatory sandboxes help, and with more innovative firms looking at automating regulatory activities, Robo-regulators are not far away.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

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