Governments And The RegTech Revolution: How Adapting Will Be The Big (Digital) Challenge
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RegTech (AKA regulatory technology) refers to technology that assists the management and navigation of compliance obligations by analysing and processing complex data. Though often synonymous with FinTech, RegTech is not confined to financial services, but is utilised across health, government, environment, energy, and other industries.
Words by: Rhiana Dabboussy
The future of Australia is digital – a sentiment the Government has made perfectly clear.
In 2018, the then Coalition Government launched its Digital Transformation Strategy, a plan to drive the digitisation of government services in Australia. Since then, we have witnessed first-hand the power of – and acute need for – digital services, and the benefits a digitised government can have for all Australians.
However, as we move further into the digital world, there is one thing that cannot be left behind. A traditionally slow moving beast, rule-making must transform alongside other products and services.
How to do this? The answer is simple. RegTech.
What is RegTech?
RegTech (AKA regulatory technology) refers to technology that assists the management and navigation of compliance obligations by analysing and processing complex data. Though often synonymous with FinTech, RegTech is not confined to financial services, but is utilised across health, government, environment, energy, and other industries.
The benefits
There has been a marked increase in the uptake of RegTech in recent years. In fact, between 2017 and 2021, Deloitte reported an almost 270% increase in RegTech providers, with the global RegTech market growing from US$9.93 billion in 2022 to US$12.37 billion in 2023.
With that much growth, there must be some pretty substantial benefits.
When services are automated, processes become more consistent, transparent and streamlined. Businesses are able to save time and money in meeting regulatory compliance obligations by relying on technology in replacement of manual processing.
This allows personnel to focus on high-value work, rather than being bogged down with monotonous tasks. RegTech also helps businesses better understand and adhere to complex regulatory frameworks which are frequently modified.
But perhaps the biggest benefit of RegTech is its ability to reduce cyber fraud and minimise business risk. Automated compliance processes can improve the speed in which suspicious activity, hacking and policy violations can be detected.
By integrating security systems and analysing data, RegTech has the power to discover and deter online crime, and can even stop cyber fraud before it occurs.
For example, financial and other services in Australia (such as gambling, bullion or digital currency exchange services) must comply with Know Your Customer (KYC) regulations. This means that they must check customers’ identities before they can deliver services.
RegTech can make this process much simpler and safer by automating user identity verification processes. By integrating access to KYC data partners into service providers’ databases, RegTech software is able to pick-up falsified information using advanced screening and detection methods.
This minimises the risk of identity theft. What’s more, RegTech can automatically ensure that the service provider is complying with the relevant KYC regulations.
How can governments stay ahead of regulatory compliance?
Released in 2021, the Regulatory Technology Roadmap presents a series of opportunities for Government to support innovation that assists the private sector in better understanding and complying with awards.
Comprising a series of short, medium and long-term approaches, the Roadmap identifies key ways in which regulations can be simplified for businesses, and how RegTech can be harnessed to ease compliance.
One approach proposed to simplify and streamline regulatory enforcement and compliance is through the development of Rules as Code. Rules as Code refers to the rewriting of legislation and regulations in machine consumable formats so that they can be responded to and engaged with by computer systems.
For example, a Rules as Code future might involve coded rules being released concurrently with natural language versions.
Such a future could ‘allow businesses to consume machine-consumable versions directly from government, reducing the need for individual interpretation and translation’.[1] This, in turn, would aid compliance, reduce business costs and minimise the ‘risk of discord between the original policy intent and the eventual effects of the policy’.[2]
This is an extremely complex and layered process with ramifications across legal, technology and policy sectors and relies on collaborative effort between both public and private stakeholders.
Another proposed approach involves the use of application programming interfaces (APIs). APIs are a tool that enables safe and reliable software communication by exchanging information. They are an intermediary that can extract, edit and share data and can be used to integrate systems and automate processes.
Rules as Code and APIs are currently being trialled across two government projects.
Fair Work Commission’s Modern Awards Pay Database API Project
Modern awards are complex, difficult to understand and carry significant penalties for non-compliance. Changes to the awards are ordinarily published online which businesses then must digest and transcribe into their own software. This process is highly inefficient and creates non-compliance risk.
In order to mitigate these concerns, the Fair Work Commission created The Modern Awards Pay Database, a platform providing digital access to the latest updates to modern award rates. Through its new API (released in March 2023), software companies can access and integrate with the Database, allowing them to leverage the data and build upon it.
Digital Twin Victoria’s eComply
Using digital twin rules-as-code assessments, eComply can be used to model physical environments to see how building applications intersect with planning and building codes. By testing designs virtually, eComply can assess whether a project is viable in a matter of seconds.
This has the potential to shave down building permit wait times, where 65 percent of permits take more than two months to be granted.
The eComply pilot project was successfully delivered in 2021 and is now in its Development Site Trial stage.
Where to now?
The future of RegTech is promising. It has the potential to increase efficiency, streamline processes and eliminate human error.
However, implementing RegTech solutions is not without its challenges. In order to utilise RegTech fully, significant time, money and skill is required to build the systems, software and interfaces needed to respond to voluminous complex data. This is a long-term and layered process.
As time goes on, it will be interesting to see how the private and public sectors use RegTech to manage and navigate compliance obligations in our increasingly digital world.
In other words, watch this space.
[1] James Mohun and Alex Roberts (2020), ‘Cracking the code: Rulemaking for humans and machines’, OECD Working Papers on Public Governance, No. 42, OECD Publishing, Paris, https://doi.org/10.1787/3afe6ba5-en. [2] Ibid.
