FCA: Regtechs must be realistic about their capabilities

By Rebekah Tunstead | 22 October 2018

Regtech organisations need to be honest about their capabilities, according to Nick Cook, head of regtech and advanced analytics at the UK's Financial Conduct Authority (FCA), during a panel discussion at this year’s Money20/20.

“Regtech was a convenient new buzzword, a couple of years ago. And I think we saw some early regtech operators who came to the market which were just ridiculously over hyped, and massively oversimplified the challenge faced by large institutions," said Cook. "Therefore, they could say, ‘yeah we don’t care if you’ve got 100,000 servers globally distributed, we can offer this to you and we can deploy it in two weeks,’ it was just nonsense.

“And so, I think you need the supply side to understand the scale of the banking needs and the supply side to be honest about the opportunity that they are presenting,” he said.

Cook also suggested that regulators are struggling to deal with the advances in technology.

“There are a lot of regulatory entities, who worry about the most cutting-edge technology, so the deep learning space and the progresses in technology… and they struggle to get their heads around that, because frankly it’s pretty hard.

“There will be a few people in this room who struggle to get their heads around the implications of those kind of technologies. But there is a whole lot that is far more modest, far more explainable, far more understandable, that isn’t being widely adopted by the markets at the moment,” said Cook.

Speaking about the evolution of regtech, Patrick Pinschmidt, general partner at Middlegame Ventures gave two reasons as to why regtech has been slow to take off.

“The challenge is that it’s still very early days on the ground. Partly, because the technology still hasn’t evolved, and partly because it’s a tremendously long sales cycle.

“The challenge is when you talk to banks 50% of the stuff that they want to talk about is regtech. Regtech has always been 20% of the sort of future prevalent pool, so it gets a disproportionate amount of interest,” said Pinschmidt.

Alex Baydin, CEO of PerformLine, said getting clarity on how regtech firms should scale up is paramount. “The way this scales is that there needs to be commitment from both sides of that transaction," he said. "The regtechs have to not sell vapourware or over promise, they have to pick a use, first and foremost. If you are aware that there is a pain point, partner with the financial institutions and map their technology through that pain point, and then get commitment from the financial institutions.”

But the challenge is clear, for Baydin. “If you support innovation, keep in mind that you represent a customer segment that is one of the hardest segments for early stage startups to crack… Act as a guide dog when regtechs knock on your door and help them navigate your organisation.”

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