RegTech at the FCA

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Financial Services Club

Nick Cook (Head of RegTech & Advanced Analytics)

7 February 2018

2001 cutting edge

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IBM’s ASCI White supercomputer

$110 million ($150m today)

106 tons / 96,000kg

2 basketball courts

3 trillion operations per second

2017

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$500 (300,000 times cheaper)

8 pounds / 4 kgs

Smaller than a basketball court

6 trillion operations per second (twice as fast)

Moore’s Law in practice

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In 16 years, for every $1 spent, computers became 600,000 times faster

RegTech is…

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“…a sub-set of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and

effectively than existing capabilities.”

We see three types of RegTech

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To improve regulatory oversight and modernise regulators

To support regulatory compliance in firms

To re-engineer / reform regulatory systems

We’re attempting to play three roles in the RegTech ecosystem

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Engaged Participant

Catalytic Convener

Evangelist / Role Model

A fourth role requested of us is not possible

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Certifier / Approver

Our RegTech activities

TechSprints

TechTalks TechKnow

Accelerators

Trials, Research and Modernisation

International

More commonly known as hackathons, these are events in which software engineers, graphic designers, project managers and subject matter experts, collaborate intensively to solve specified problems through building prototype technology solutions

Cross-industry dialogue and discussions on innovative technologies, priority use cases and regulatory/policy clarification. Raising understanding of RegTech at the C-suite level

We engage with accelerator and incubator programmes to help them target investment and mentoring efforts on companies solving regulatory challenges of interest to us

We are experimenting and adopting a number of RegTech solutions ourselves. Current projects include natural language processing, chatbots, social media analytics, graph analytics, machine-learning and visual analytics AI. We are partnering with UK universities on research projects.

We run regular sessions where we invite technology thought leaders in to inspire and educate FCA colleagues about financial innovations and new technologies.

We engage with multiple international regulators on our RegTech activities and our advanced analytics projects. We are sharing best practice and learning from others.

TechSprints

Encouraging the development of technology that would address some of the persistent issues consumers face when trying to access financial services.

To identify potential technology solutions and innovations to improve the efficiency and effectiveness of regulatory reporting

T2 – Unlocking Regulatory Reporting (November 2016)

T1 – Consumer Access (April 2016)

TechSprints

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To empower people with fluctuating mental health problems by encouraging development of technology solutions to help break the link between financial difficulty and mental health problems.

T4 – Model-Driven Machine Executable Regulatory Reporting (November 2017)

T3 – Financial Services and Mental Health (March 2017)

To explore and test the feasibility of technology innovations to deliver model driven, machine readable and executable regulatory reporting.

Regulatory Sandbox

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Space for innovators to test new ideas with real customers

Open to authorised and unauthorised businesses and technology providers – as long as they pass our ‘Eligibility Criteria’

FCA closely oversees trials using a customised regulatory environment for each pilot – including safeguards for consumers Provides intelligence on developments, trends and emerging risks

FCA Restricted

Eligibility criteria

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Criteria Examples of positive indicators

Is the firm in scope? Innovation appears to be intended for the UK market

Is it genuine innovation? Desk research produces few or no comparable offerings already established on the market

Is there a consumer benefit?

The business has identified any possible consumer risks and proposed mitigation

Is there a need for a sandbox?

The innovation does not easily fit the existing regulatory framework, making it difficult or costly to get the innovation to market

Is the firm ready for testing?

Testing plans are well developed with clear objectives, parameters and success criteria

Sandbox Statistics

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Firms accepted: 40+

UK applications from outside of Greater

London: 20+

International applications:

10+

Applications by large firms:

5+

Applications: 100+

What technologies are we seeing?

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Distributed Ledger Technology

Artificial Intelligence

Cloud

Application Programming Interface

Predictive Analysis

Biometrics

Advanced Analytics

Robo-Advice

RegTech in the Sandbox

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Lets users create an encrypted, biometric digital identity linked to their government issued ID

Monitors the movement of money and facilitates the sharing of anonymised information to help prevent financial crime

Creates commercial or personal identity and verifiable documents on a distributed ledger. In partnership with Aviva, they will provide a system for automated customer authentication Tracks updates to regulations within the FCA Handbook and aligns their implementation to internal policies

RegTech is now global

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The volume of discussion on Twitter regarding RegTech since Jan 2016 has risen dramatically

USA, UK, France, India and Canada form the Top 5 countries discussing RegTech

Tw

eets

per

month

We’re helping to increase RegTech discussion and awareness

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The FCA’s work on RegTech has created peaks in discussion on Twitter and a potential 35m impressions.

TechSprint 3

TechSprint 2

FCA feedback statement on RegTech CFI

published

TechSprint 1

The FCA RegTech

roundtables London FinTech week speech on RegTech and AI

FCA and R3 develop blockchain-

based RegTech solution

TechSprint 4 TechSprint 3+

New sandbox cohort

Our journey so far and plans for 2018

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June Commenced engagement with RegTech community

November Call for Input on “Supporting the development and adoption of RegTech” issued

April TechSprint 1 (T1) on Access to Financial Services

July Feedback Statement on Call for Input issued

November TechSprint 2 (T2) on Unlocking Regulatory Reporting

January Commenced role as advisor to R2A Programme

February T2+ follow-up to Unlocking Regulatory Reporting TechSprint

March First research project with academia commenced (Blockchain for Algorithmic Regulation & Compliance “BARAC”)

TechSprint 3 (T3) on Financial Services and Mental Health

Supported launch of R2A Programme in Jakarta

July Started TechKnow series (4 completed to date, 2018 series arranged)

August Research project on distributed ledger technology-enabled regulatory reporting system (with R3, and two Banks)

October Established RegTech & Advanced Analytics Department

November T3+ follow-up to Financial Services and Mental Health TechSprint

November TechSprint 4 (T4) on Model-Driven Machine Executable Regulatory Reporting

December AML/Digital ID technologies industry roundtables

December Vendor Evaluation for R2A Programme

February Call for Input on Machine-Executable Regulatory Reporting (February)

March First (internal) analytics hackathon

March AI/machine learning industry roundtables

May TechSprint 5 (T5) – AML/Financial Crime TechSprint

2015

2016

2017

2018

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www.fca.org.uk/regtech (includes videos from our TechSprints)

nick.cook@fca.org.uk

Connect on LinkedIn - (https://www.linkedin.com/in/nick-cook-15a30b12/)

11FS FinTech Insider – “RegTech Chaos Monkey” https://11fs.com/podcasts/ep234-regtech-chaos-monkey/

11FS FinTech Insider – “Money and Mental Health” https://11fs.com/podcasts/ep242-money-and-mental-health/

Barefoot Innovation – “Regulation Innovation – the FCA’s Christopher Woolard” http://www.jsbarefoot.com/podcasts/2017/12/10/regulation-innovation-the-fcas-christopher-woolard

Barefoot Innovation – “The Future of Regulation – the FCA’s RegTech Leader Nick Cook” http://www.jsbarefoot.com/podcasts/2018/1/8/the-future-of-regulation-the-fcas-reg-tech-leader-nick-cook

Wall Street Journal – “Compliance in the future: machine-executable rules” https://blogs.wsj.com/riskandcompliance/2018/01/10/compliance-in-the-future-machine-executable-rules/

CNBC – “UK Regulator looking to use AI, machine-learning to enforce financial compliance” https://www.cnbc.com/2017/07/13/uk-regulator-looking-to-use-a-i-machine-learning-to-enforce-financial-compliance.html

Finance Feeds – “FCA, BoE gear up for TechSprint to explore advantages of RegTech” https://financefeeds.com/fca-boe-gear-techsprint-explore-advantages-regtech/