Ecosystem regulation: a pragmatic approach to responsible tech

BNPL (Buy Now Pay Later) was hailed as a solution to enable financial inclusion, but regulators need to monitor how it really protects consumers’ interest. For instance, in India, regulators disallowed BNPL providers from extending credit on prepaid payment instruments. This created uncertainty for businesses and highlighted the need for clear regulations.

Regulating emerging technologies is complex because they often cross over into different sectors and organizations. For example, AI in healthcare is regulated for quality, safety, governance, privacy, consent and ownership of data. However, diversity and inclusion aspects are regulated separately. The ideal solution is for organizations to take responsibility for diversity and inclusion, but this is not yet the case.

Ultimately, a regulator's actions on a particular regulatory framework depend on a few factors — the technology, the regulator's view of that tech, how market players are using it and how it intersects with other technologies, sectors and organizations.

Regulatory mitigation

Regulators are working to create a responsible tech ecosystem by building collaborative data platforms and regulatory sandboxes. The collaborative data platforms allow financial institutions to share information about customers and transactions — thus, improving fraud prevention and other risk management practices. Regulatory sandboxes provide a safe space for organizations to test new technologies and services under the supervision of regulators. It would bode well for organizations to view sandboxes as an opportunity to collaborate with regulators and shape the future of responsible tech.

Here are some of the benefits of collaborative data platforms and regulatory sandboxes:

● Improved fraud prevention: By sharing information, financial institutions can better identify and prevent fraud.

● Enhanced risk management: Regulators can gain a better understanding of the risks associated with new technologies, which can help them to develop more effective regulations.

● Fostered innovation: Sandboxes provide a safe space for organizations to test new technologies and services, which can help to drive innovation in the financial sector.

Supervisory technology

Regtech is a broad term that encompasses a variety of technologies that can be used by regulators to monitor and enforce compliance. Regtech can be used to:

● Identify and mitigate risks associated with new technologies: Regtech can be used to analyze data to identify potential risks associated with new technologies, such as AI or blockchain. This information can then be used to develop regulations that mitigate these risks.

● Encourage innovation: Regtech can be used to create a safe space for organizations to test new technologies and services. This can help to encourage innovation in the responsible tech space.

● Foster collaboration between regulators and organizations: Regtech can be used to facilitate collaboration between regulators and organizations. This can help to ensure that regulations are developed in a way that is both effective and feasible.

Overall, regtech can be a valuable tool for regulators as they work to keep pace with technological innovation and mitigate risks.

Author: Mahima Gupta, Principal Consultant, Financial Services at Thoughtworks (Views are personal)