Technology and the ‘New Governance’ Techniques of Financial Regulation

Abstract

Modern data and information technologies are having a profound impact on financial services and opening new frontiers in regulation. This article explores the deployment of technology to embed regulatory objectives within the management and decision-making processes of financial firms. Technological innovations can enhance oversight of prudential and conducts risks, and substantially lower compliance costs. They can also address the information imbalances that limit the effectiveness of older approaches, in which the firm is a ‘black box’ that can only be externally supervised. The central challenge is establishing an appropriate governance of technology in regulated firms to ensure that these serve regulatory as well as business outcomes. Such an approach should be embedded as a development of the ‘new governance’ techniques of financial regulation. This perspective is developed by reviewing current debate on the use of technology and its application to a range of challenges in financial regulation and supervision.

Keywords: regtech, meta-regulation, rule-based regulation, principles-based regulation, regulatory outcomes

JEL Classification: G18, G28, G38, K23, M15, O16, O33, O38