30 July 2018
If one were to imagine the ideal financial supervision system of the future, it would probably look very different from what we have today. Financial institutions would report details of transactions to a central utility, from which regulators would be able to extract information in real time. They might monitor markets through multiple screens in futuristic control rooms, picking up systemic risks with the help of flashing lights and heat maps.
Data reporting requirements have increased dramatically since the 2007–2008 financial crisis, but central banks and regulators admit they cannot yet use this data to build an accurate picture of risk in the financial system. The evolution of regulatory technology, or regtech, might help deal with this problem – and some central banks are actively exploring opportunities – but there is a long way to go.
“New regulations over the past decade have created a massive new pool of data that didn’t previously exist, so there is a major opportunity for central banks to use this data to obtain better insights and achieve better regulatory outcomes,” says Douglas Arner, professor of law at the University of Hong Kong.
Enthusiasm for exploring regtech varies across the central bank community, with some institutions already surveying and testing new approaches while others wait to see how the technology evolves. But the data challenge shows little sign of diminishing, with the likelihood of further reporting requirements being layered on top of existing ones... Click here to read the full article.