Complying with regulations is essential but can be costly for newcomers and a barrier to the establishment of innovative financial services. “The way regulations are currently applied is a kind of a balancing act where you want to encourage innovation and fintechs,” says Dr Daniel Gozman. “But at the same time, you don’t want to reduce standards and allow additional consumer and systemic risk into financial systems.”
Part of the high cost of compliance for businesses is due to the number of employees with different skills needed to navigate the labyrinth of regulations. Further complications exist because “we live in a world where there's exponentially more data being created, just through day-to-day business,” Daniel says. “But you can't get a human to review it all because it's too voluminous and complex. Plus you need individuals who know about risk, about technology, project management, and a lot about law – finding those mixed bags of capabilities isn’t easy.”
In a recent project Daniel and his team worked with the International Regtech Association (IRTA), Phrontier Systems and Siemens. They collated the views and experience of CEOs, entrepreneurs, developers and fintech incubators to review existing standards and frameworks. The results informed an international standards document for the International RegTech Association that helps shape engagement and best practice start-ups, regulated firms and regulators to work together.
Daniel has also undertaken research in collaboration with SWIFT, which facilitates millions of financial transactions each day to analyse how artificial intelligence tools are used by regulators and banks to investigate large-scale market manipulation and fraud. The outcome of such investigations has led to billion dollar fines levied in the USA and UK.