Blog: What Is Regtech? Has The Time Come For Its Implementation Into Our Legal Landscape? – Fin Tech – Mauritius – Mondaq

Mauritius:

What Is Regtech? Has The Time Come For Its Implementation Into Our Legal Landscape?

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In Mauritius, the period starting from the outbreak of the
COVID-19 pandemic has witnessed a remarkable increase in the
regulatory landscape, especially as regards the promotion of
technology, artificial intelligence and other fintech applications,
whether as a necessary means to revisit the way we do business in
line with international development or simply in our quest to
establish the new normal which the COVID-19 pandemic has admittedly
triggered. The time has now come to explore some of the other
possibilities which technology such as advanced analytics and
machine learning offer.

In this regard, regulatory technology, better known as
‘RegTech’, becomes particularly pertinent. In brief,
RegTech refers to the technology which helps companies deal with
their regulatory processes, including compliance matters.

The main objective of RegTech can be said to enhance and make
more efficient the compliance process. It operates on a
three-pronged objective aimed at:

  • decreasing compliance costs whilst increasing efficiency;
  • improving compliance and lessen risks; and
  • ensuring customer protection.

As one of the main actors of the international business
community, especially on the question of compliance, law firms are
in our view directly concerned with RegTech. We here examine the
possibilities and challenges which RegTech offer to law firms.

REGTECH AND LAW FIRMS – CHALLENGES AND OPPORTUNITIES

In our view, RegTech would be a natural choice for law firms
involved in cross-border transactions because:

(a) “technology now plays an increasingly fundamental role
in financial services and is also a catalyst for change and
innovation” (Fintech: Law and Regulation, Jelena Madir,
Elgar Financial Law and Practice)
;

(b) it focuses on agility, speed, increased integration and
analytics (BBVA Research, RegTech, the New Magic Word in
FinTech (2016)
; and

(c) the FenTech applications identified by the Financial Conduct
Authority of the United Kingdom actually (i) support regulatory
compliance in firms (ii) improve regulatory oversight and modernise
regulators and (iii) reform regulatory systems and could be
considered as a starting point.

The RegTech solutions identified by the Toronto Centre
(FinTech Regtech and SupTec: What They Mean for Financial
Supervision (2017))
are FinTech opportunities and relevant to
law firms namely:

IDENTITY MANAGEMENT

Digitalise client on-boarding processes, share customer
information, gather and analyse customer and transaction data,
identify suspicious transactions based on automated triggers and
constantly update customer profiles;

COMPLIANCE

(i) enable enterprises identify and changes in regulatory
requirements locally and globally and

(ii) automate real-time monitoring of compliance levels and
risks based on data analysis;

RISK MANAGEMENT

Improve risk management process of financial institutions;

REGULATORY REPORTING

Automate and integrate regulatory reporting requirements
thereby

(i) reducing costs

(ii) streamlining and increasing accuracy and reporting
timelines;

TRANSACTION MONITORING

Offer real-time transaction monitoring and auditing by using
DLT, end-to-end integrity validation, anti-fraud and market abuse
identification systems; and

TRADING IN FINANCIAL MARKETS

Automate procedures related to transactions in financial
markets.

The foreseeable challenges to the implementation of RegTech as a
novel approach to enhancing efficiency would in our view be the
following:

(i) onerous procurement processes;

(ii) preference for large and established providers;

(iii) fragmented market;

(iv) regulatory uncertainty;

(v) concentration risk;

(vi) data protection security and cyber threats (Fintech: Law
and Regulation, Jelena Madir, Elgar Financial Law and Practice at
266-268).

Of these four indicators, the main barriers are the question of
onerous procurement processes and a known preference for large and
established providers. First, lengthy approval processes,
on-boarding cycle and decision making of financial institutions
hinder RegTech adoption. Secondly, increased interconnectivity will
lead to new risks regarding data protection, privacy and cyber
threats. Therefore, increased collaboration between financial
regulators and FinTech enterprises are to be encouraged to address
these concerns.

CONCLUSION

The increased reliance on digital applications of the global
village since the start of the COVID-19 era has called for a
corresponding need to put into place a more robust legal framework
to address issues triggered by technology. Opportunity knocks on
the doors of the actors of the international business community to
review the existing regulatory processes especially for compliance
and adapt to the challenges of the digital world. Law firms are no
exception.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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