RegTech and the New Era of Financial Regulators: Envisaging More Public-Private Partnership Models of Financial Regulators
51 Pages Posted: 29 May 2019 Last revised: 15 Jun 2019
Date Written: May 3, 2019
The rise of FinTech has not only advanced operational efficiency of the financial industry but also posed challenges to regulatory efficiency. There is a growing consensus on the importance and urgency for financial regulators to enhance their capacity through the use of RegTech. RegTech is widely considered as holding a great potential to facilitate the supervisory process and enhance the regulatory compliance. The current studies of RegTech, however, remains in its infancy. Most of the literature identifies and stock-takes different technologies and discusses how to apply them to facilitate financial regulation and supervision. These studies, in our view, mainly focus on the conduct aspect of RegTech. Of equal importance, yet largely overlooked, is the organizational aspect of RegTech, that is, how the organizational design and culture of a financial regulator affects its capability and suitability for applying RegTech to facilitate financial regulation and supervision.
This paper attempts to fill this gap by offering more insights on how to organize a financial regulator to ensure its accountability, flexibility, and adaptiveness in the era of RegTech. We argue that such a regulator requires the character of a public-private partnership, which should contain some public elements to ensure the unbiasedness of financial supervision and some private elements to adapt to rapid technological changes. This paper firstly conducts a comparative analysis of the worldwide organizational models of financial regulators, by which we identify four major types and compare the different public-private relationship between them. The paper then applies the analytical framework of the Transaction Cost Economics, particularly the Theory of Firm and the Comparative Institutional Approach, to theorize a spectrum of public-private-partnership for different organizational models of financial regulators, ranging from a firm-type of partnership to a contract type of partnership. Based on this theorized spectrum, together with the comparative institutional approach, this paper identifies four more possible models of public-private-partnership that may help financial regulators streamline their organizational structure to promote the adoption of RegTech. These models include a mixed ownership RegTech corporation, a contracted RegTech supporter, a quasi-public financial regulator, and directly delegated gatekeepers. Policymakers and financial regulators across the globe can consider and choose a model that better suits its own regulatory and supervisory needs.
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