Partnering with leading financial sector authorities to pioneer the next generation of tools and techniques for market supervision and policy analysis

The RegTech opportunity for financial authorities

Dramatic increase in DFS adoption has fostered financial inclusion3

Countries with explicit financial

inclusion commitments

60+Growth in consumers with a financial account, 2011-14 (World Bank Findex)

700+MILLION

Total number of mobile money transactions processed globally (GSMA, Dec. 2015)

1BILLION

As more countries have developed policies supporting financial inclusion, digital finance services (DFS) marketplaces have expanded.

Increasing access to digital financial services has been driven in large part by the entry of new financial providers and their agent networks.

4New FinTech actors offer further opportunities for financial inclusion

Implications for financial authorities5

Financial authorities’ capacity has not increased

commensurately with the market’s expansion and

inclusion of new consumers.They cannot adequately ensure their policies are

actually followed in practice.

A market shift from banks that happen to use technology to

technology companies that offer financial services historically

provided by banks is underway.Regulators and supervisors have

difficultly keeping pace with faster innovation and updating their skill sets to fully harness technology.

Constrained regulatory &

supervisory capacity

Technology-driven marketplaces

The growth of digital finance and FinTech pose critical supervisory and regulatory challenges:

Digital transactions produce large quantities of new,

readily-accessible data for policy analysis.

Availability of new types of data presents opportunities to drive evidence-based policy-

making and oversight.

Explosion of new data

Technology-enabled tools as RegTech opportunity6

Though the use of technology by financial authorities is not new, recent advances in

technology present new opportunities.

Regulatory Technology (RegTech)

Technology-enabled solutions that further regulatory

objectives

Just as new technologies have transformed the delivery of financial services, they could be equally transformative in improving regulatory

oversight and policy development.

Technology can be a powerful regulatory tool, especially when accompanied by

process, systems, and policy innovations to take advantage of the tool’s full potential.

7Available technologies Technologies for better analysing existing

data Dashboards and other

visualizations to allow for more up-to-date, customizable policy analysis and report generation.

Tools for improving the timeliness and reliability of compliance reporting data (e.g., APIs), and for making them suitable for more complex analytics.

Machine learning to identify patterns among a wealth of data on DFS transactions across various channels.

Prescriptive analytics to better target scarce resources for deeper review and on-site supervision.

Technologies for analysing new data

Mechanisms for crowdsourcing DFS consumer experiences from, e.g., transactions or complaints, to allow the regulator to understand their experience and needs.

Interactive technologies, such as chat bots, that take advantage of existing data and human resources to “triage” incoming communication and direct consumers to their appropriate point of contact.

Automated analysis of information available on the internet (e.g., posts on social media to proactively identify issues (e.g., natural language processing).

8RegTech adoption by providers for regulatory compliance purposesVendors currently helping financial service providers with regulatory compliance can serve financial authorities too once:(i) Awareness of financial authorities’ demand is

raised, and(ii)Understanding of financial authorities’ technical

requirements and procurement processes has improved.

Source: Let’s Talk Payments

9Potential benefits of RegTech for regulators

1.Improve market oversight by streamlining and standardizing the collection and analysis of supervisory data, thereby facilitating day-to-day monitoring and enhancing the capability of supervisors to effectively and efficiently oversee marketplaces.

2.Develop smarter, proportional, risk-based regulation by encouraging a timely, data-driven policymaking cycle that i) addresses bad practices and abuses before they become widespread; and ii) informs policy design with evidence from market and customer experience.

3.Lower financial services providers’ cost of compliance by automatizing reporting and stemming from delays or mistakes that result in penalties.

4.Strengthen consumer trust and participation in the financial system by facilitating improved disclosure or customer recourse.

Improving digital finance oversight reinforces broader regulatory goals of developing inclusive and resilient financial systems.

10

Vision for what market oversight and policy development can be

FINANCIAL SERVICE PROVIDER BENEFITS

CONSUMER BENEFITS

FINANCIAL AUTHORITY BENEFITS

Capability to identify and act on emerging risks with best quality,

real-time dataNew knowledge and insights

drive evidence-based policymaking

Increased usage of transparent products and better recourse if issues

ariseGreater voice in holding providers accountable

Financial authorities hear the ‘voice of the

consumer’

Lowered compliance costs and regulatory risks make serving

poor consumers more attractive A transparent, accountable

system fosters consumer trust and greater usage of their

products

Mutual understanding & two-way communication

Financial authorities and providers are responsive to consumer feedback

Supervision and policymaking can be reimagined using a technology-driven, digital-first, RegTech-enabled approach.

11

Possible applications of RegTech for RegulatorsRegTech can potentially be applied to address a wide set of regulatory challenges.

Crowdsourced consumer feedback and complaints

Geospatial analysis Real-time mobile surveys

(SMS & IVR)

Shared industry KYC, authentication system

Agent registry Digital IDs

Standardized, automated reporting tools

Analysis of transactional data for market / policy intelligence

Open data platforms Data visualization & analysis

tools

CONSUMERPROTECTION

DATAANALYSIS

RISK-BASED KYC/AML/CFT

RegTech solutions offer the opportunity to pioneer a digital-first approach to market oversight and policy development, involving consumers and

financial service providers in new ways.

Project description

13Our vision

We believe the future of financial regulation, supervision, and policymaking lies in using technology and data to improve the speed, quality, and comprehensiveness of information in support of targeted, risk-based decision-making. We also believe a RegTech approach can reduce the cost of compliance for financial institutions and increase consumer trust and participation in the financial system.

The RegTech for Regulators Accelerator (R2A) partners with leading financial sector authorities to pioneer the next generation of tools and techniques for market supervision and policy analysis.

14What does R2A do?

Launched in October 2016, R2A will partner with a select set of leading financial authorities over twenty months to develop and test next-generation RegTech prototypes that could serve as examples for other financial authorities to follow. R2A engages closely with technology innovators, creating structured opportunities for innovators to (i) understand supervisory and regulatory challenges faced by financial authorities, and (ii) work collaboratively to design and test potential solutions.

R2A is an accelerator for the deployment of RegTech solutions for financial authorities and a contributor to the creation of a global RegTech marketplace.

15

R2A principles

We place financial authorities in the driver’s seat, while

providing technical assistance, matchmaking with innovators, mentorship and peer learning

opportunities.

We bring financial authorities and innovators together to solve critical regulatory and

supervisory pain points.

Financial Authority-Led

Collaborative

R2A is designed to be both customizable and adaptive to the specific context and needs of the financial authority.

16

Expected outcomes

1

Leading financial authorities and

innovators in three markets have

prototyped cutting edge technology solutions for

market oversight and policy development.

Participating financial authorities play a leadership role in

sharing learnings and good practices with

peers.

Participating financial authorities have familiarized with

innovative engagement processes to attract

innovators and generate new solutions for market

oversight and policy development.

2 3

17

How does R2A work?

Identifying potential solutions:

Engaging innovators through competitions to crowdsource innovative

ideas that meet regulatory and

supervisory needs.

Months 1-6 Months 10-20Months 7-10

R2A’s twenty-month program consists of three phases:

Defining the opportunity:

Assessing partnering financial authorities’

needs, selecting a specific area of opportunity, and

defining the requirements of potential solutions.

Testing prototypes: Co-design, development,

and testing of ideas among financial authorities and

innovators.

I II III

18

Defining the opportunity with the partner financial authority

Involve relevant departments /

units in the identification of pain points to alleviate and

desired “super powers”, and in the selection of

one or more relevant use

cases.

Step 1 Step 2 Step 3 Step 4

Four steps to define the project together:

Identify relevant external

stakeholders, both those needed to

prototype a solution and

those who would be users (e.g.,

financial service providers).

Map flows of data and information

today and identify their

attributes; if no current process,

identify the need.

Develop a technical

architecture for a RegTech solution.

19

What R2A offers to its partnersBRIDGE WITH INNOVATORSTECHNICAL ASSISTANCE

Experts in regulation, supervision and the use of artificial intelligence and other technologies to (i) work with partner financial authorities to select use case for application of RegTech solution, and (ii) facilitate identification and selection of innovators to prototype RegTech solution.

Support for Project Lead and other partner financial authority staff.

Selection of innovators to prototype RegTech solution (through competition).

Funding selected innovators.

KNOWLEDGE EXCHANGE Peer learning

opportunities (both in-person and online) with cohort of financial authorities, expert FinTech advisors, and other selected stakeholders in the emerging RegTech community.

PROJECT MANAGEMENT Management of entire

process from identification of use case and selection of innovators through development and testing of prototype RegTech solution.

Ways for interested financial authorities to engage

Join R2A learning network 21

Interested financial authorities can stay up-to-date on lessons learned through the R2A by:

Subscribing to receive updates Obtaining notifications of upcoming briefings Connecting with participating financial authorities through peer-learning opportunities

For more information, please contact R2A@bfaglobal.com.

ContactR2A@bfaglobal.com