Featured Product

    EBA Report Examines Regtech Landscape in Financial Sector

    June 29, 2021

    EBA published a report that offers insights into the regtech landscape in EU. The report provides a mapping and understanding of the existing regtech solutions, examines the adoption status of such solutions, looks at the spending of financial institutions, and examines the impact of COVID‐19 and other trends and drivers on regtech development. The report assesses the overall benefits and challenges faced by financial institutions and solution providers in the use of regtech, identifies risks arising from regtech solutions that supervisors will need to address, and puts forward steps to be taken to support sound adoption and scale-up of regtech solutions. The actions aim to ensure technological neutrality in regulatory and supervisory approaches to regtech, while addressing any inadvertent obstacles within the Single Market to facilitate the adoption of regtech across EU.

    The report looks at the application of technology-enabled innovation for regulatory, compliance, and reporting requirements and provides a deep-dive analysis into the five most frequently used regtech segments: Anti Money-Laundering/Countering the Financing of Terrorism (AML/CFT), fraud prevention, prudential reporting, information and communications technology (ICT) security, and creditworthiness assessment (addresses loan origination). In prudential reporting, the degree of automation varies heavily throughout the different parts of the reporting process chain. With 57% of all solutions not being in the production stage (36% reported in a vendor presentation stage and 21% in a proof of concept/pilot stage), the report notes that prudential reporting is the least mature of the major RegTech segments analyzed in this report in terms of implementation stages. Cloud computing is claimed to be used by 54% of regtech solutions providers while predictive data analytics are claimed to be used by 31% of them. In the report, EBA explains how some of the identified challenges are being analyzed through different initiatives around data standardization and the creation of common data definitions. The deep-dive on regtech for prudential reporting reflects findings identified in the EBA recent study on cost of compliance with supervisory reporting requirements; the study recommends wider use of technology and raising awareness of possible use cases for regtech in supervisory reporting.

    Additionally, the report points out that financial institutions’ development of creditworthiness assessment regtech solutions remains at an early stage and most institutions consider developing these solutions in‐house. Regtech providers, however, seem to be willing to seize the opportunities of Open Banking to extend the range of their products and services and leverage their existing customer base to create or enlarge their digital ecosystems, including on credit products. According to financial institutions and regtech providers, technologies used to support creditworthiness assessment are artificial intelligence, including machine learning and natural language processing, Application Programming Interfaces (APIs), and cloud computing. The majority of regtech providers reported positive outcomes from the use of APIs, mentioning that through APIs, they can improve their product development process, including the speed of launching new products and services into the market. One major issue that financial institutions reported is the lack of written standards or guidance by regulators and supervisors regarding the use of new technologies (for example, clearly identifying what institutions are able to do or not and if supervisory authorities would allow the
    use of alternative data sources).

    Overall, financial institutions highlight enhanced risk management, better monitoring and sampling capabilities, and reduced human errors as the main benefits of use of regtech solutions. Regtech providers emphasize the ability to increase efficiency, quell the impact of ongoing regulatory change, and improve effectiveness. Evidence suggests that the majority of challenges to regtech market development are internal factors within financial institutions and regtech providers. These relate to data (quality, security, privacy), interoperability and integration with the existing legacy systems, a lack of application programming interface (API) capabilities at financial institutions, costly and often lengthy and complex due diligence processes, and limited awareness of regtech solutions. The current legal and regulatory framework has not been identified as the most material obstacle for regtech adoption. However, lack of common regulatory standards across member states could pose barriers for wider market adoption of regtech solutions across the Single Market. Building on the existing ongoing initiatives of EBA, ESAs, and competent authorities, EBA proposes the following steps to be taken to support sound adoption and scale-up of regtech solutions:

    • Continue building knowledge and raising awareness about regtech among the regulatory and supervisory community and build convergent supervisory practices, primarily through workshops, forums, and targeted events. There is a need to have an efficient knowledge exchange and to continue to improve the knowledge and skills of regulators and supervisors on regtech.  
    • Continue the effort to identify where there is a need to harmonize the legal and regulatory framework across EU on identified priority issues by issuing guidance on regtech‐related matters or flagging any issues for the attention of EC
    • Leverage role and expertise of the European Forum for Innovation Facilitators (EFIF) and the national Regulatory Sandboxes and Innovation Hubs to facilitate innovation by fostering collaboration and dialog between financial institutions, regtech providers, and competent authorities.  

    In the longer term, additional actions, such as the creation of a centralized EU database of regtech solutions or a potential certification of regtech could be further explored and considered at the EU level, along with an evaluation of who would be the best placed to implement such solutions. However, neither of those two options are within the current mandate and focus of EBA. 

     

    Related Links

    Keywords: Europe, EU, Banking, Regtech, AML/CFT, Fraud Detection, Lending, Credit Origination, Credit Risk, Reporting, EBA

    Featured Experts
    Related Articles
    News

    BIS Bulletin Examines Cognitive Limits of Large Language Models

    The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.

    January 25, 2024 WebPage Regulatory News
    News

    ECB is Conducting First Cyber Risk Stress Test for Banks

    As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.

    January 24, 2024 WebPage Regulatory News
    News

    EBA Continues Momentum Toward Strengthening Prudential Rules for Banks

    A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.

    January 24, 2024 WebPage Regulatory News
    News

    EU and UK Agencies Issue Updates on Final Basel III Rules

    The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards

    December 19, 2023 WebPage Regulatory News
    News

    Industry Agency Expects Considerable Uptake for Swiss Climate Scores

    The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.

    December 18, 2023 WebPage Regulatory News
    News

    BCBS Consults on Disclosure of Climate Risks, Issues Other Updates

    The Basel Committee on Banking Supervision (BCBS) launched consultation on a Pillar 3 disclosure framework for climate-related financial risks, with the comment period ending on February 29, 2024.

    December 18, 2023 WebPage Regulatory News
    News

    US Government Moves to Regulate Development and Use of AI Models

    The U.S. President Joe Biden signed an Executive Order, dated October 30, 2023, to ensure safe, secure, and trustworthy development and use of artificial intelligence (AI).

    December 18, 2023 WebPage Regulatory News
    News

    MAS Launches Gprnt Digital Platform for ESG Reporting for SMEs

    The Monetary Authority of Singapore (MAS) launched an integrated digital platform, Gprnt, also known as “Greenprint.”

    November 29, 2023 WebPage Regulatory News
    News

    EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis

    The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.

    November 28, 2023 WebPage Regulatory News
    News

    NGFS Publishes Phase IV Long-term Climate Scenarios for Banks

    The Network for Greening the Financial System (NGFS) published its latest set of long-term climate macro-financial scenarios (Phase IV) for assessing forward-looking climate risks.

    November 28, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8947