57 Pages Posted: 5 Jan 2022 Last revised: 17 Sep 2022
Date Written: September 16, 2022
Compliance-driven investments in technology—or “RegTech”—have grown rapidly in recent years. To understand how these investments affect the financial sector, we study how financial institutions respond to new internal control requirements. First, we show that affected firms make significant investments in enterprise resource planning, data management, and hardware. These investments then allow for complementary expenditures on customer relationship management tools that rely upon information quality. As a result, customer complaints and employee misconduct decline at affected firms. Additionally, market concentration increases. Our results illustrate how regulation can directly and indirectly affect technology adoption, which in turn affects noncompliance functions and market structure.
Keywords: RegTech, FinTech, technology adoption, financial regulation, compliance, internal controls, complementary investments, software bundling
JEL Classification: G23, G30, G38, L51, M42, O31
Suggested Citation: Suggested Citation