Jason talks to Professor Ben Charoenwong, an Assistant Professor in Finance at the National University of Singapore. Today Ben is going to talk about some research he has done specifically in the RegTech field. Ben explains how dealer broker firms would not have wanted to invest in all these technologies on their own, it’s the fact that there are some regulations that kind of forced them to get software.
- 1.40: RegTech is short for regulatory technology or software that is designed specifically for the purpose of improving or assisting with compliance with rules and regulations.
- 6.09: At the end of the day, everything is all about liability and the only way to make companies accountable is to make them liable, says Jason.
- 9.00: When you look down the list of like the top 20 broker dealers, it’s a mix of whether they are caring or not a lot of this business line of having custody.
- 11.04: There are many proprietary software solutions for document handling and storage that jumped about 30% when this rule was signed and started to be implemented and there is just a dramatic jump in the firms adopting the software solutions.
- 12.44: Ben saw an almost exact equivalent jump on the hardware side. The estimated IT budget for each company increased by about 30 to 40% and consequently the profitability of these firms increased by about five percentage points.
- 19.14: The most profitable per dollar of revenue firms that exist at this point are typically sole practitioners running at a high level of automation and it’s interesting.
- 24.04: Ben talked about his research, and did he complete any form of causation like was it the elimination of bad actors or we could just attribute this to a Hawthorne effect?
- 27.35: If you think about this SEC 175-A rule it is very basic and just says, all these other financial regulations, just can you comply with them always.
3 Key Points
- The main thing about customer asset segregation is that the brokers that were not carrying or using other brokers as custodians, that was fine because that’s a third party and it’s very hard to steal customer assets when it’s sitting with someone else, says Ben.
- Realistically companies looked at SEC rule that basically talks about banking versus investing and they must have thought immediately like we need a software solution. James explains what he saw in terms of the implementation and its efficacy of it.
- The technology component seems to have the operational effect that’s almost equivalent to like having the FBI come check the firm, says Ben.
- “In the face of increasing regulations in the financial services sector, it’s become fairly difficult for humans to actually make sure they are in compliance.” – Ben
- “You always have all the independent parties who are making decisions as to how things are to work.” – Jason
- “It’s a known phenomenon that computers tend to not get scrapped, they trickle down for a long period of time until they’re useless.” – Jason
- “I don’t think regulation is going anyway anytime soon. It’s going to increase even more.”- Ben
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Interviews and commentary about how technology is changing the world of finance.