Regulation technology: New frontier in regulatory compliance, risk management, and governance

In the era of digital transformation, where technology is rapidly reshaping the landscape of industries and economies, a new field known as Regulatory Technology (“RegTech”) has emerged. It promises to revolutionise the way regulatory compliance, risk management, and governance are managed. RegTech while originating in the financial sector, has applications to any sector that is subject to regulation.

Ideally, regulations exist to protect the public, the environment, and the economy. They form a complex network of rules that regulated entities must navigate. Understanding the regulatory environment is crucial, particularly for those operating in highly regulated sectors. By understanding and working within regulations, hopefully, healthy ones, unique opportunities and advantages often emerge.

In Nigeria, like in many other countries, the regulatory landscape is vast and complex, spanning various critical sectors such as finance, healthcare, energy, communications, and more. Each of these sectors is governed by a multitude of regulations, which are continually evolving to keep pace with technological advancements and societal changes. Developing and managing compliance with these regulations is a significant challenge for both regulators and regulated entities, often requiring substantial resources and expertise.

This is where RegTech comes in. RegTech, a fusion of ‘regulatory’ and ‘technology’, leverages cutting-edge technologies to streamline regulatory processes. It is a response to the increasing complexity of managing regulatory compliance in a digital world, where traditional methods are often inadequate, inefficient, and costly. By automating routine tasks, improving data quality, and providing real-time monitoring and analysis, RegTech has the potential to transform the way regulations are developed, complied with, and enforced.

Benefits of RegTech
RegTech, leveraging advanced technologies, offers a multitude of benefits that can significantly enhance regulatory compliance, oversight, and efficiency. It brings enhanced efficiency in regulatory processes, significantly reducing the time and resources required for tasks such as data collection, analysis, and reporting. It also improves compliance by enabling real-time monitoring and analysis, thus allowing for proactive identification and resolution of potential issues. By automating compliance tasks, RegTech reduces the risk of human error, a common cause of compliance failures. Furthermore, RegTech reduces costs associated with regulatory compliance and enhances transparency in regulatory processes, fostering greater accountability and trust. RegTech not only facilitates innovation by simplifying regulatory compliance, but it also equips regulatory bodies with real-time data and insights, thereby aiding in the formulation of beneficial and effective regulations.

RegTech …an AI system that has been trained to automate the compliance verification process of the Electricity Act.

By harnessing the power of technologies such as artificial intelligence (AI), big data analytics, and blockchain, RegTech can help to simplify and automate regulatory compliance, reduce operational risks, and enhance regulatory oversight. For regulators, this means improved efficiency, greater transparency, and better-informed decision-making. For regulated entities, it means reduced compliance costs, minimised regulatory risks, and increased business agility.

Challenges in implementing RegTech
While the benefits of RegTech are significant, its implementation comes with its own set of challenges, particularly in a developing economy like Nigeria. The implementation of RegTech solutions often involves complex technologies, such as AI which can be challenging to understand and integrate into existing systems, especially for organizations with limited technical expertise or resources. Moreover, the rapid pace of technological change necessitates continuous updating of knowledge and skills to keep up with the latest developments in RegTech.

The use of RegTech often involves the collection, storage, and analysis of large amounts of data, raising serious concerns about data privacy and security. These concerns can be particularly acute in sectors such as finance and healthcare, where sensitive information is routinely handled. Ensuring that RegTech solutions comply with data protection regulations and industry standards can be a complex and challenging task.

Implementing RegTech often involves significant changes to an organisation’s processes, systems, and culture. Managing these changes can be a major challenge, requiring strong leadership, clear communication, and ongoing training and support. Resistance to change can be a significant barrier to the successful implementation of RegTech.

While the implementation of RegTech presents significant challenges, these challenges are not insurmountable. With the right strategies and resources, organizations can overcome these challenges and harness the power of RegTech to enhance their regulatory compliance and performance

A roadmap for implementing RegTech
Implementing RegTech solutions in Nigeria’s regulatory landscape necessitates a strategic approach. The roadmap begins with assessing the current capabilities of regulatory bodies and regulated entities and identifying gaps and areas for improvement. This involves a thorough evaluation of existing systems, processes, and skills to ascertain their readiness for RegTech. The next step in the roadmap involves the selection of appropriate RegTech solutions that align with the identified needs and then planning for their implementation. The final step involves monitoring and evaluating the implementation, ensuring the solutions deliver expected benefits, and addressing any arising issues. This strategic roadmap enables regulatory bodies and entities to harness RegTech’s power for enhanced regulatory compliance and performance.

Example of a RegTech solution for compliance monitoring
To demonstrate the practical usage of RegTech, consider an AI system that has been specifically trained and developed to automate the compliance verification process with certain standards, such as those outlined in the Nigeria Data Protection Act or the Electricity Act. Such a system would initially establish the compliance criteria. Subsequently, it would create a function to assess whether any data provided by a regulated entity aligns with these criteria, and then proceed to continuously monitor compliance.

RegTech: Beyond compliance to risk management and governance
The potential of RegTech extends beyond the immediate benefits of improved efficiency and reduced costs. It also offers the possibility of a more proactive and predictive approach to regulatory compliance. For instance, machine learning or deep learning algorithms can analyse vast amounts of data to identify patterns and trends that may indicate potential risks. This allows regulators to proactively manage risks, taking preventative action before issues escalate.

Moreover, RegTech can help manage specific risks associated with digital transformation across sectors. For example, cybersecurity risks, which are a growing concern with the increasing digitalization and interconnectivity of systems, can be effectively managed using RegTech solutions. These solutions can monitor system activity, detect unusual patterns that may indicate a cyberattack, and trigger appropriate responses.

In addition to risk management, RegTech can also enhance governance in the regulatory landscape. By automating routine tasks and providing a digital trail of all compliance-related activities, RegTech can increase transparency and accountability. This can lead to better decision-making, improved stakeholder trust, and ultimately, more effective governance and rule-making

By providing regulators with advanced tools and capabilities, RegTech can help them anticipate future trends and challenges, adapt their regulatory frameworks accordingly, and ensure that their sector continues to operate safely, efficiently, and sustainably.

Conclusion
RegTech is more than just a tool for regulatory compliance, risk management, and governance; it’s a revolutionary field that can transform the regulatory landscape across all sectors. By leveraging advanced technologies, RegTech can simplify and automate regulatory compliance, reduce operational risks, and enhance regulatory oversight. However, the adoption of RegTech is not without challenges. With a systematic approach, these challenges can be overcome, and the full potential of RegTech can be realised. As we continue to navigate the digital age, RegTech will undoubtedly play a crucial role in shaping the future of regulatory compliance, risk management, and governance. Furthermore, RegTech will evolve into a valuable tool for commercial lawyers who must continue to find strategic and creative ways to engage with an increasingly complex regulatory environment

Rotimi Ogunyemi is a Partner at Johnson&Wilner LLP