Taking Islamic regtech by design

A new global regtech association is working on making the Islamic finance industry an integral part of a comprehensive borderless regtech ecosystem.

The concept behind the International RegTech Association (IRTA) is simple in essence: to create a collaborative, supportive and inclusive environment to advance and influence the regtech industry. To achieve what it has set out to do, however, may be a complex process. But the IRTA is off to a good start.

In just one month since the Zurich-headquartered non-profit organization opened its doors, about 300 individuals from 16 countries have joined the IRTA and Subay Roy, the association’s global chair who previously served as EY’s global regtech leader, expects membership to hit 2,000 over the next six months. Seeing exceptional interest from Europe, Australia, Singapore, India and increasing participation from the US, Canada and China, the IRTA anticipates at least another 20 nations to be part of its community, including key Islamic finance markets.

“Our main goal is to help create regtech as a profession across the globe and to provide a collaborative ecosystem for the financial industry – including banks, researchers, technologists and regulators – for research and innovation projects for the benefit of regtech,” Roy shares with IFN Fintech. “We have already attracted regtech firms and financial regulators from different countries and are getting into multiple projects and we would like to do exactly the same for Islamic financial centers worldwide because this is a really significant market.” Kuala Lumpur, Jakarta, Dubai, Abu Dhabi, Riyadh are on the IRTA’s radar, as well as North Africa.

High on the agenda – apart from nurturing its intricate ecosystem and establishing national chapters worldwide – is to formulate and promote regtech standards for the global community. And above that, to develop regtech professional education.

“The education would not only revolve around technology but also on how to create future regulations,” says Roy. Instrumental in revolutionizing how financial institutions are being regulated is what Roy calls regtech-by design.

Sometimes referred to as ‘inbuilt compliance’, regtech-by design basically means to embed risk and compliance as part of the operating processes in the financial sector, and to narrow the gap between compliance checks and the actual timing of business events, according to Roy who authored a report exploring this.

“The idea is to have regulators work closely with regtech firms to transform new regulations and rules into machine learning languages, and if possible, for banks to take those regulations as their operating system and put it on top of their business processes so that regulatory compliance checks can be done in real time,” explains Roy.

Financial regulations are often cumbersome, and with regulators imposing greater scrutiny on the financial industry to avoid another financial meltdown and to protect the industry from the rising threat of cybercrimes, it is likely that regulations are only going to get heavier. Take for example, the Dodd-Frank Act which was signed into law in response to the Great Financial Crisis of 2008: it alone has 243 rules – on paper, it is 2,300 pages long. The Financial CHOICE Act, a bill led by the current US Congress to roll back many provisions in the Dodd-Frank Act, is 600 pages long. To maintain effective oversight is challenging and the inability to detect violations in a timely manner could be severely detrimental and costly if remedial actions are not performed immediately. Just look at the LIBOR scandal which cost homeowners and local US governments billions of dollars.

It is the hope of the IRTA that regtech-by design could be a potential solution. And for that to become a reality, more research, work and innovation need to happen.


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