Australia’s lawmakers have launched a select committee to see how the emerging RegTech community is doing. We checked in with industry stakeholders to see what they thought of the initiative.
Financial services are changing Down Under. Ever since the Royal Commission concluded in February after unveiling severe systematic malpractice in the industry, the pressure for regulators and lawmakers alike have been growing to whip the sector into shape. This has seen them warning that they would keep the sector under close watch in the future.
In August, the Australian Prudential Regulation Authority’s chairman Wayne Byres told finance leaders they had only themselves to blame for regulators taking a closer look at them. He said that the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had shown that the sector had fundamentally failed to self-regulate.
The thirst for change has also meant that the market has opened up for startups in both the FinTech and RegTech space. Entrepreneurs have been quick to launch challenger banks and enterprises pledging to ensure the regulatory compliance of incumbents through technology.
Lawmakers in Oz have welcomed the emerging industries. They are now taking steps to ensure that both industries can thrive whilst protecting consumers. To ensure this, the senate officially launched the Select Committee on Financial Technology and Regulatory Technology in October. It will run for one year.
The committee will investigate what the rise of the sector will mean for consumers, what barriers for entry there are, the progress of the FinTech facilitation reform and the benchmarking of comparable global regimes. Moreover, it will also investigate the health of the RegTech industry and how it is operating, the role it can play to improve compliance and cut costs.
“We want to create more Australian jobs,” said Andrew Bragg, committee chair and Australian senator, at the time of the announcement. “That will only happen if we are competitive as a nation. Australia is always competing for capital and the ability to bring new ideas to market. We want more Australian ideas to be exported to the world.”
The RegTech stakeholders RegTech Analysts spoke with seemingly share his optimism. “The formation of the committee is an exciting step for Australia’s RegTech space as collaboration with the state’s authorities is important for any growing sector,” says David Clee, CEO and co-founder of MirrorWeb, the website and social media archiving platform.
He points out that similar initiatives have helped the sector in other countries. “In the UK, the support provided by the Financial Conduct Authority through its sandbox initiative has helped several RegTech firms flourish so this involvement from the government should be welcomed,” Clee continues.
Marc Gilman, general counsel and vice president of compliance at Theta Lake, the communication compliance technology provider, is of a similar mind. “I think the RegTech sector would like to see the further development of efforts like the [Australian Securities and Investments Commission’s] Innovation Hub to promote deeper engagement between RegTechs, regulators and firms,” he tells RegTech Analyst.
Globally, the RegTech sector is going from strength to strength. RegTech companies have annually attracted increased the investment injected into the industry. In 2014, the sector attracted $923.4m, according to RegTech Analyst’s data. That number grew each year until the global industry attracted $4.48bn in 2018 and a smashing $6.53bn in the first three quarters of 2019.
However, Clee warns that the industry Down Under must face several challenges that the committee should consider. “Aside from the usual challenges facing any startup – cost pressures, scaling struggles, etcetera – there is a scarcity of unique talent,” Clee argues. “It’s already difficult enough for even the largest firms to hire top engineers and coders, but within RegTech there is a special need for personnel that understand the regulatory conundrums they are trying to solve.
“Additionally, many RegTech firms focus on a particular issue or specific regulatory burden so there is limitation with some solutions on the market. With financial services firms wary of spending too much on third-party service providers, there will surely be a greater demand for holistic solutions and the RegTech firms that can satisfy more than one regulatory need could rise to the top. This could also drive M&A activity, which we have already started to see in the UK.”
Looking at other things industry stakeholders would like to see, Gilman says, “The committee highlights the long sales cycle of heavily regulated industries like financial services, which can present significant barriers to entry for startups. Perhaps the regulators could lead efforts to educate founders about these hurdles and offer opportunities for RegTechs and member firms to come together.
“Along similar lines, creating shared frameworks for routine processes like vendor security assessments would provide tangible benefits. Bringing together firms to collectively agree on a set of standard security questions leveraging open frameworks like NIST or CIS as baselines would provide startups with clear guideposts for platform development and drive efficiencies in the sales and onboarding processes.
“In addition, the regulators should examine how they can leverage RegTech solutions for their own examination and market oversight purposes. The regulators’ adoption of RegTech tools would put their oversight practices on par with member firms and emphasise the utility and stability of these new tools.“
The committee is looking to hear from the RegTech industry by New Year’s Eve this year.
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