The regulatory downpour

There is continuous debate within the financial world around the volume of regulation: market players want less of it, while everybody else demands more. Since the financial crisis, the majority has won out.

The regulatory burden placed upon banks and financial institutions has never been greater. This is not just a result of the sheer amount of new regulation, but also its scope. With the introduction of the revised Markets in Financial Instruments Directive (Mifid II) and Basel III, regulation has had both a multi‑geographical and multidomain impact.

More regulation has resulted in a deluge of data, which financial firms, supervisors and regulators alike are struggling to handle and utilise. A new debate has thus emerged: are banks and regulators equipped to process this data to ensure a sounder financial system?

This focus report aims to offer assistance to financial regulators and supervisors in understanding the challenges that come hand in hand with evolution in the regulatory and supervisory environment. It explores how technology can assist in making assessments of the main risks supervisors need to devote their efforts to guard against.

The report examines the role artificial intelligence could play in the regulatory sphere, introducing the idea of machine‑executable regulation. An interview with former Federal Reserve official Kenneth Lamar, an expert in the field of regulatory reporting, reveals the challenges faced by banks around their data capabilities; while a forum of panellists discusses whether technology can aid banks and regulators in making the most of data.

Central banks and other supervisors are only just beginning to realise the transformative impact technology could have on the industry. Technology solutions have the potential to reduce compliance costs, standardise and automate regulatory reporting, and close the gap between regulatory expectation and interpretation.

There is much work to do and we hope this report will provide some guidance on issues that are only just beginning to be discussed.

^{This article forms part of the Central Banking Risk-based supervision focus report, published in association with Vizor}