A lack of co-ordination and data standards in the ‘regtech’ ecosystem exposes financial firms to “profound” risk of unexpected compliance costs, according to the director of innovation at UK’s Financial Conduct Authority.
Speaking today at the New Statesman’s Virtual Fintech Summit, Nick Cook explained that the risk stems from the diversity of data formats and standards used across the industry.
“There are a lot of different data assets that sit across financial firms, some of which they own, some of which are open and public data sources, others are bought and procured commercially,” said Cook.
“They are inconsistently defined, they’re inconsistently modelled and they’re inconsistently managed, and so as a regulator like us, where we have 60,000 entities to supervise, those minor inconsistencies in definition and data standards create profound expense risks, or risks of misuse of the data, because we misunderstand it.”
Cook called for greater co-ordination in the regtech ecosystem. “Unlike perhaps fintech, the regtech ecosystem is not as well organised at the moment,” he argued. “There isn’t a strong set of trade associations that give us a very clear set of asks and needs into regulators and governments.”
“There are absences of common data standards, models and definitions across markets, that make it difficult for us to efficiently exploit data in the way that we would like to,” he added.
Addressing regtech risk
One way to address this would be to create a common definition of some core data elements across financial markets, Cook said, which could, in turn, benefit fintech firms by helping them to communicate in a common language.
The urgency of the issue has increased as Covid-19 has prompted more financial transaction to take place digitally, Cook explained. “This is perhaps one of the fastest accelerations of a need for digital transformation that the world has been through, and will go through, because of the consumer need, because of the governmental need, because of the lack of physical access between individuals and firms and entities.”
At the same time, Cook said, this rapid digital transformation has prompted regulators to modernise their own operations. “On the plus side, the global appetite across regulators for digital transformation has increased massively.”