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March 14, 2019

ESMA published the results of its analysis of the regulatory and supervisory technologies—also known as regtech and suptech—being developed in response to various demand and supply drivers in the financial sector. The results of this analysis have been presented in an article in the latest Trends, Risks, and Vulnerabilities (TRV) Report of ESMA. The article discusses regtech applications by market participants and suptech applications by regulators, along with the associated challenges and benefits.

ESMA finds that on the demand side, regulatory pressure and budget limitations are pushing the market toward an increased use of automated software to replace human decision-making activities. This trend is reinforced by supply drivers such as increasing computing capacity and improved data architecture. Market participants are increasingly using new automated tools in areas such as fraud detection, regulatory reporting, and risk management, while potential applications of new tools for regulators include greater surveillance capacity and improved data collection and management. With these new tools come challenges and risks, notably operational risk. However, with appropriate implementation and safeguards, regtech and suptech may help improve the ability of a financial institution to meet regulatory demands in a cost-efficient manner and help regulators to analyze increasingly large and complex datasets.

 

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Keywords: Europe, EU, Banking, Securities, Insurance, Fintech, Regtech, Suptech, Operational Risk, ESMA

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