In This Newsletter
RegTech and SupTech
Financial Education and FinTech in Growth Markets
March 2023 Banking Crisis
Personalized Finance in the Metaverse
RegTech and SupTech
This March, Nicole Valentine moderated a discussion on regulatory technology (RegTech) and supervisory technology (SupTech) with the Milken Institute–IFC Capital Markets Program at the George Washington University School of Business. The conversation covered market and regulatory developments, key ongoing projects in the space, practical challenges faced in implementing tech solutions, and the way forward for regulators. The session featured speakers Pooja Singh, senior financial sector expert, financial supervision & regulation division, monetary & capital markets department for the International Monetary Fund; Kathy Kraninger, vice president of regulatory affairs at Solidus Labs; Bryan Stirewalt, senior managing director for K2 Integrity; and David Ehrich, co-founder and executive director for the Alliance for Innovative Regulation (AIR).
The panelists shared the definitions of RegTech and SupTech in the context of capital markets. RegTech refers to technology that manages regulatory compliance for institutions, while SupTech is innovative technology used by regulatory agencies to support the supervision of regulated institutions. The panel emphasized that it is essential that the two technologies are interoperable to ensure reliable, standardized reporting and monitoring. Ehrich discussed how an interoperable RegTech and SupTech infrastructure could enable regulators to issue rules as code directly into RegTech platforms. Kraninger, who served as the second director of the Consumer Financial Protection Bureau, weighed in on the importance of SupTech and RegTech in creating a trusted market for consumers.
The panelists discussed the global projects attempting to standardize RegTech and SupTech and their experiences with implementation in emerging markets. They spoke to the range of SupTech they had seen around the world, from judications using basic Excel spreadsheets to major international efforts to coordinate financial supervision. The Bank for International Settlements is working on pilot program Ellipse with the Bank of England and the Monetary Authority of Singapore. The project explores how supervision could become insights-based and data-driven using an integrated regulatory data and analytics platform across jurisdictions and institutions.
Drawing on his international experiences, Stirewalt emphasized the value of regulators engaging in public-private partnerships. Citing the example of Central Asia’s emerging financial sector in the 1990s, he warned that shifting power dynamics and poor communication among the government, regulators, and banks could create operational risk, hinder cyber data privacy, and facilitate fraud. He stressed that no uniform RegTech could be delivered without the participation of the financial industry, data scientists, and IT professionals. He also noted that disruptive technologies like artificial intelligence (AI) and machine learning are only increasing regulators’ need for the expertise of the private sector.
Ehrich provided an example of public-private partnerships in AIR’s Tech Sprints. TechSprints are intense problem-solving sessions designed to facilitate innovation and promote collaboration among regulators, private actors, and civil society. Ehrich noted that the many regulators whose roles are maintaining functioning financial markets and managing risk could be hesitant to work too closely with the startups that threaten to destabilize markets and enhance risk. However, events like TechSprints can bring together regulators and technologists to inform policy. AIR has hosted TechSprints with financial regulators and law enforcement agencies on topics like using the traceability features of blockchain to fight money laundering, human trafficking, and child abuse.
Financial Education and FinTech in Growth Markets
Valentine’s comments on the International Growth Markets track at the 2022 Singapore FinTech Festival were featured this March in Forbes. The article, “The Role of Fintech in Growth Markets,” discussed the changing investment landscape for FinTech firms going into 2023. According to the article, the higher inflation and interest rates have affected fundraising, with global venture capital investment dropping nearly 60 percent from its peak of US$178 billion in Q4 2021 to US$75 billion in Q3 2022. The article warned that, despite huge strides made in the past few years to expand access to mobile banking, falling FinTech investment would leave large populations throughout Southeast Asia unbanked.
The article cited Valentine’s comments on the session, Financial Education & Literacy: The SME & Consumer View, where she made a case for FinTech and financial fluency as tools for inclusion and empowerment: “When you put access to capital in the hands of those who need it, there also has to be an understanding of how to manage the risk of that capital, how to invest that capital, how to move forward with it. Financial education and access to capital have to go hand in hand.” The objective of greater financial inclusion should not be relegated exclusively to bull markets. Policymakers and innovators must consider how to best expand access to financial services even in difficult economic conditions.
March 2023 Banking Crisis
The crisis was not limited to SVB. Silvergate Bank and Signature Bank also failed this March, while Credit Suisse and First Republic Bank experienced serious liquidity issues. The Wall Street Journal reports First Citizens Bank will acquire the bulk of SVB’s deposits and loans, offering some normalcy to the regional banking, startup, and venture capital industries.
SVB, Silvergate Bank, and Signature Bank were notable for their exposure to the cryptocurrency industry. SVB held deposits for several key players in the American digital-asset market, while Silvergate Bank and Signature Bank facilitated crypto-to-fiat conversions for major exchanges. Speaking to e-cryptonews, Nicole Valentine commented on the implications of the spate of collapses for the American capital markets and the digital asset space: “This moment is not about banks vs. crypto. It is about the infrastructure, management, policies, and culture of the institutions that custody, transfer, and deploy our assets. The future is about managing risk—inflation rate risk, credit risk, cyber risk, deposit risk, and crypto risk.” She further commented on the role social media platforms played in spurring and responding to the bank run: “We learned, through this series of bank failures, that social media risk is a new risk factor that we will need to define, analyze, track, and manage.”
Personalized Finance in the Metaverse
Through the use of big data and AI, FinTechs have provided more personalized services to customers. One frontier where FinTechs are exploring opportunities to better personalize their services are through virtual environments on the metaverse. Nicole Valentine spoke with FinTech Times about how innovation in the metaverse could fill the gaps that digital-only financial service providers are leaving behind. Valentine cited the potential role the metaverse could serve as a platform for virtual personal financial advisors and how tools like that may improve financial inclusion, access, and literacy.
At the 2022 Middle East and Africa summit, Sebastian Siemiatkowski, CEO of Klarna, discussed the role virtual financial advisors could play to frictionlessly optimize financial services in the future in the session The Next FinTech Unicorn: Investment Opportunities in FinTech.