FSB highlights the importance of RegTech and SupTech in new report

From: RegTech Analyst

A new report from the Financial Stability Board highlights both the risks and opportunities in the growing RegTech and SupTech markets.

The report noted that the growth of the two sectors was made possible to an ubiquity of available data and new infrastructure such as cloud computing and application programming interfaces.

Thanks to this, regulators and tech firms can more easily collect and analyse big data sets.

Thanks to this, regulated institutions could tap into the power of RegTech to boost compliance outcomes, enhance risk management capabilities, and generate new insights into the business for improved decision-making.

For authorities, the use of SupTech could improve oversight, surveillance and analytical capabilities, and generate real-time indicators of risk to support forward looking, judgement based, supervision and policymaking.

Whilst the report noted that the benefits of automating and cutting costs with the new technologies were plenty, the FSB also highlighted that these opportunities were not risk-free.

“However, strong governance and skilled human oversight is needed if these tools are to provide enhanced stability,” the report noted. “For example, tools that rely upon inferences that are largely based on historical data associated with past instances of instability, which have their own unique characteristics, may not hold for future crises.

“In addition, insufficient understanding of the technology and interpretation of algorithms, particularly through outsourcing, might exacerbate potential vulnerabilities. SupTech and RegTech applications that use ‘black box’ models may raise questions of interpretability and explainability of data and results.

“Strong governance around supervisory analytical technology and processes can be important to ensuring the tools act in a manner to best minimise potential risks to stability.”

Copyright © 2020 FinTech Global

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