As a subset of fintech, the word regtech also risks the same hollowing out into meaningless generality that may happen with fintech: after all, if fintech means just ‘technology enabled financial services’, then it is nothing new. Financial institutions have always been data intensive, using abacus and paper before computers, and big banks were among the earliest adopters of digital technologies. So too, if regtech is simply ‘technology enabled regulation’, then it is little new: regulators have not generally been as quick as financial service providers to adopt new technology, but most use already some forms of technology and incrementally innovate.
But there is a world of difference between a noun, which names something, and a verb, which does something. A word can even be both; indeed, when a noun becomes a verb, it is usually significant. For example, Uber is the name (i.e. a noun) of the best known ride sharing service outside China; but it has also become a verb, as in “Let’s uber”, showing how much the service has shifted the way urban dwellers think about transport. Google and facebook have similarly become both nouns and verbs.
Now, regtech certainly is a noun which describes a category of fintech approaches, just as the FCA has defined it. But is its real value rather likely to come as a ‘verb’? By that, I don’t literally mean that we should start ‘to regtech’ anything; that feels far more awkward today than ‘to google something’ felt fifteen years ago. Rather, I mean that its real value as a word may lie in the action and energy which it unlocks. Regtech is partly a call to action—some might say it is bringing financial regulation into the 21st century—and partly an expression of hope (against hope), that it might be possible or even desirable to transform, or should we say disrupt, traditional regulation just as fintech has started to disrupt traditional financial services. Let’s face it: regtech’s ‘parent’ fintech is more than just a descriptive noun: it has become a desirable asset class for venture investment, and this unlocks new risk taking capital at accelerating rates. It is also a rallying cry which attracts fresh new young talent to the financial services sector which seemed tired, discredited and illegitimate in many places after the financial crisis. It is also a faith-like assertion that the battle is not only to the incumbent or the big—startup David’s sometimes can take on incumbent Goliaths and win.
If we conceive regtech this way as a ‘doing’ word, can it help to rekindle the hope that regulators will not be eternally condemned to playing catchup to markets—just maybe, in some areas? Can it focus new energies and even capital, philanthropic and commercial, on coming up with new approaches to oversight which indeed do protect the inherent fragility of financial sectors and the vulnerability of consumers who use them? To do so requires that regulators themselves take risk, admittedly not a commonly found characteristic, to reconsider their policies and practices, and to try out new approaches to regulating. For example, could ‘agile development’, a term developed in tech circles to describe fast, iterative processes of developing and testing new products, apply also to the development of new policies? Some regulators are setting up regulatory sandboxes as special ‘jurisdictions’ in which regulators allow providers to try out innovative new services under lighter regulation. That approach may well help fintech companies to get started; but what about sandboxes for regulators themselves to pilot their own innovative practices, which if successful, could change the way regulators regulate in general, not just for startups? Perhaps success will indeed be achieved when regulators say “let’s regtech that approach”, meaning “let’s try out a new way of doing something”. If this happens, then the word regtech may still be around in ten years’ time; if not, I fear that the bland noun ‘regtech’ on its own will soon sink into the sea of well-intentioned but meaningless generality.
DFI’s new Regtech Community of Practice will enable members to follow the evolution of this new term in a fast evolving space. Members of DFI’s SWITCH network can apply to join this COP via the Communities section of www.digitalfrontiersinstitute.org/switch.
By David Porteous