PA Consulting's report on the future of regulation is featured in Financial Sector Technology. The article talks about PA’s research which reveals that financial services firms expect to lose business and revenue if regulators do not embrace innovation and evolve with technology trends. Conrad Thompson, a business transformation expert at PA explains the reports findings.
The research found that 92 per cent of businesses said that if regulators in their sector fail to evolve - in areas like processes, technology, manpower and culture - they expect to feel a negative impact within three years. Expected revenue loss was put at eight per cent on average.
Additionally, 95 per cent of organisations expect at least some business activity or revenue to be lost to new or disruptive businesses in the next five years. Across sectors, this is expected to represent 20 per cent.
Most organisations do still see regulators as enabling innovation (45 per cent) as opposed to blocking it (26 per cent). Over the next five years, most want regulators to retain an enabling role, with nearly a third looking for regulators to drive innovation (31 per cent). That is particularly true in the financial services sector (20 to 30 per cent).
Conrad warns that regulators cannot afford to be complacent: “They need to be more comfortable with trying new approaches and techniques and being agents of change rather than burdens in their industries,” he comments. “More than ever, they need to be prepared to take risks and occasionally admit to past mistakes.”
The report found that UK regulators are lagging behind other international regulatory bodies in their own use of technology.
Regulators collect vast amounts of data but don’t always use it as well as they could. Applying technology solutions like machine learning to this so-called ‘dark data’ - unstructured data that is collected but not analysed - could enable regulators to start to predict future events and become increasingly proactive.
For example, machine learning is already being used to monitor market chatter like social media to highlight compliance risks, and semantic text analysis can create usable insights from large stores of unstructured information.
The article goes on to look at regulated businesses. Around two-thirds of regulated businesses (62 per cent) said regulators could show they were trustworthy by communicating their purpose and role more clearly. Other than employing industry experts, this was the most important way for regulators to build trust.
Conrad concludes by saying that data and insight make it easier to engage with consumers. “But as we head into uncharted territory, regulators will need to keep up with the challenges of regulating artificial intelligence, blockchain and vast analytics.”