Hong Kong, Singapore and Tokyo each have an opportunity to demonstrate global leadership in the fast-growing RegTech sector, according to a panel of experts assembled by the Asia Society Hong Kong Center on Thursday (14 January).
Amid an increased need for new tools to assess and monitor corporate governance challenges, operational risk, and to identify when culture challenges lead to increased conduct risks, Starling Founder & CEO Stephen Scott noted a recent emphasis in the financial industry towards non-financial risk management. “At the same time, RegTech has evolved from what was a niche market to what is now an established sub-sector of the financial industry,” Scott said.
According to recent research, the RegTech market is expected to grow to about USD 16 billion in size by 2025, with much of the growth coming from Asia. Firms across the region are eager for management ‘dashboards’ that provide bank leadership with better information flows and better decision making capabilities. Data quality and data security concerns might slow delivery on the “dream” of real-time monitoring and reporting of culture and conduct risk. But IBM Vice Chair and former President and COO of Goldman Sachs, Gary Cohn, noted that advancements in data science are bringing about a new paradigm of financial regulation – one which focuses on real-time, predictive behavioral analytics.
Such capabilities allow regulators and financial institutions alike to be more forward-looking and proactive in risk mitigation. The idea of real-time metrics to reflect VAR (Value at Risk), balance sheet usage, leverage calculations and margining was once seen as utterly impossible, “Today, it seems you can’t run a financial institution if you don’t do these things,” Cohn said. Just as the pressing need and advances in technology permitted for real-time monitoring of financial risk decades ago, Cohn believes that those same forces are at work today in the domain of non-financial risk.
“We’re entering a new frontier of regulation,” said Cohn, an advisor to Starling who has served as Director of the US National Economic Council. In the last four decades, he noted, financial markets have been regulated using backward-looking activity and data. “It has not been about looking forward and predicting what’s going to happen and monitoring human behaviour.” Cohn believes the move to predictive, real-time monitoring of non-financial risk is going to come “a lot faster than people think”, despite any challenges.
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