While fintech has become a widely recognized term for technology innovation in the financial services space, theindustry is still trying to pin down the exact meaning ofregtech.

SEC Commissioner Michael Piwowar took on what he called the“ill-defined” term in a recent speech, stating that in part,regtech “covers the use of technology by regulators tofulfill their duties in a more thorough and efficient manner,” asis the case when the Securities and Exchange Commission's MarketAbuse Unit Analysis and Detection Center “deploys technologicaltools to detect insider trading and market manipulationactivities.”

However, regtech, Piwowar added, “also refers to the use oftechnology by regulated entities to streamline theircompliance efforts and reduce legal and regulatory costs.”

One example would be using blockchain technology and artificialintelligence tools to “allow the easy and secure transferal ofcritical regulatory data to multiple federal agencies,” hesaid.

“Most importantly,” Piwowar added, regtech“covers collaboration between private and publicactors to take advantage of existing technologies to makeeveryone's lives easier.”

Another regtech example, Piwowar noted is the SEC's “criticallyimportant” Electronic Data Gathering, Analysis and Retrievalsystem, or EDGAR, which makes public company filings “trulyaccessible to the whole internet-wired world,” and “greatlyenhanced and democratized the power” of the SEC's disclosure-basedregulatory system.

As he noted, the Commission is currently engaged in an EDGARredesign program, “a multiyear cross-Commission initiative todevelop and deliver a 'next-generation' electronic disclosuresystem.”

A Post-Financial Crisis Remedy

Aite Group stated in a recent report titled Regtech RealityCheck: The Truth About Compliance Technology that the newindustry buzzword combines the terms “regulation” and “technology”and reflects the industry demand for technology to “better arm” thecompliance function in the wake of the financial crisis of2008.

The industry, writes the report's author Virginie O'Shea, hasbeen “bombarded with compliance requirements over the last fewyears,” and understanding how each of the regulations correlates orconflicts with the others when put into an operational andpractical context is an unwieldy task.”

With so many “moving parts to monitor,” O'Shea said, “complianceteams are often overwhelmed, and legal experts are in highdemand.”

Firms, she argues, “must re-evaluate the resources they have athand to meet the ongoing pipeline of requirements and move from areactive approach to a more proactive and strategic stance.”

During the fourth quarter 2017, the report notes that Aitesurveyed 120 financial institutions, with the majority hailing fromthe buy side (70% work for asset managers or hedge funds).

Less than a quarter of respondents use the term “regtech,” thereport found,

While “regtech is increasing in usage and popularity in themedia and within the venture capital and private equity realm, ithas yet to be fully adopted into the industry lexicon across thecapital markets,” O'Shea writes.

However, O'Shea added that “it's telling that more than half(53%) of respondent firms are aware of the term even if they don'tuse it.”

The report notes that from 2015 to 2017, “regtech” Googlesearches “increased significantly” and that Aite Group anticipatesthat, much like fintech, regtech's “application will be debated bythe industry over the next couple of years until it is absorbedinto the day-to-day reality of capital markets firms and the termbecomes part of the industry lexicon.”