The inaugural RegTech Data Summit’s thesis was that regulatory rules, technology, and data must be modernized in a coordinated fashion. If all three areas are modernized in tandem, new RegTech solutions will flourish, reducing reporting duplication, minimizing reporting errors, and enabling automation.
Over 400 participants, 37 speakers, three live technology demos, and over 20 exhibitors agreed: we were right.
Throughout the day, we looked at the state of regulatory reporting regimes, solutions that exist, and what could be improved by modernization – “What is?” and “What if ?”
Here are my top 10 moments:
- SEC: RegTech can “make everyone’s lives easier”
- XBRL has an image problem
- A vision for a universal, non-proprietary identifier
- Demo: Achieving an open law vision
- Demo: Blockchain for continuous audits
- Demo: SBR is happening down under; businesses and government are both saving
- Silicon Valley Keynote: Private-public collaboration is key
- A coming convergence of regulation, technology, and data
- Looking ahead: What does the future look like for RegTech?
- The numbers
Let’s dive into each of these movements!
1. SEC keynote: RegTech can “make everyone’s lives easier”
SEC Commissioner Michael Piwowar kicked off the RegTech Data Summit. The Commissioner outlined his definition of RegTech:
“[C]overs the use of technology by regulators to fulfil their duties in a more thorough and efficient manner…. RegTech also refers to the use of technology by regulated entities to streamline their compliance efforts and reduce legal and regulatory costs. Most importantly, the term covers collaboration between private and public actors to take advantage of existing technologies to make everyone’s lives easier.”
- Watch SEC Commissioner Piwowar’s keynote address.
2. XBRL has an image problem
- What is? Currently, the SEC has a dual reporting regime–HTML filing and XBRL filing. That’s burdensome! For over three years, the Data Coalition has been advocating for the SEC to move away from this duplicative reporting system. Leslie Seidman, former FASB Chairman, noted that “XBRL is suffering from a image crisis… most companies view this as a burden that’s deriving them no benefit whatsoever.”
- What if? Seidman went on to recommend how advocates of structured data should describe its benefits to corporate America,
“[S]how [corporations] the extent of manual effort compared to an automated process using XBRL data–that alone by combing the processes… you will clearly be saving money because you would have one group who is responsible for preparing and issuing those financial report… Talk candidly and influentially about these potential risks and costs that exist now, and how the iXBRL solution will actually reduce their risk and cost.”
- Our Coalition strongly supports the Financial Transparency Act (FTA) (R. 1530) (summary here), currently pending in the U.S. House, to direct the SEC to replace its duplicative documents-plus-data system with a single submission, both human- and machine-readable. The bill has 32 bipartisan cosponsors. When passed, it will be the nation’s first RegTech law.
3. A vision for a universal, non-proprietary identifier
- What is? Regulatory agencies use (approximately) 18 different identifiers to track the entities they regulate; companies maintain internal IDs; and proprietary ID systems are fatally flawed. There is no ID to rule them all. The hodgepodge of identifiers impedes technological solutions, frustrates compilers and enforcers, and wastes everyone’s time.
- What if? The Legal Entity Identifier (LEI) could be the fix. It’s been adopted by dozens of regulatory agencies around the world, including two in the United States: currently, the Consumer Financial Protection Bureau requires mortgage issuers to have an LEI; the Commodity Futures Trading Act requires the same for derivatives traders. Stephan Wolf, CEO of the Global LEI Foundation, made the case for the universal adoption of the LEI, stating the non-proprietary identifier would:
- “Reduce transactional and operational friction, both within and among organizations …
- The LEI makes important information about the background of a legal entity in a transaction more accessible.“
- Report: Who is Who and What is What? The Need for Universal Entity Identification in the United States
4. Demo: A vision for machine-readable regulation
- What is? Member company Xcential demoed how Congress is moving away from static documents to adopt open data standards. Xcential is helping theClerk of the House and the Office of the Law Revision Counsel create and apply an open data format to legislative materials; the project is known as the S. House Modernization project. Xcential’s software can natively draft and amend bills using the XML-based U.S. Legislative Model. Other projects Xcential is working on include the U.K. Legislative Drafting, Amending, & Publishing Programme, which is publishing rules, regulations, orders, directives, proclamations, schemes, and by-laws (bye-laws) in open data formats, fully machine-readable!
- What if? If laws, regulations and other legal materials were all published in open formats, machine-readable regulation will improve compliance, reduce human effort, and shrink compliance costs. Legislation to keep an eye on: The Searchable Legislation Act (SLA) (R. 5143); The Statutes at Large Modernization Act (SALMA) (H.R. 1729); The Establishing Digital Interactive Transparency (EDIT) Act (H.R.842).
5. Demo: Blockchain for continuous audit
- What is? Audits are burdensome, costly, and time consuming, and provide only a once-a-year or once-a-quarter picture of an organization’s finances.
- What if? Auditchain co-founder Jason Meyers and director of assurance and XBRL architecture Eric Cohen demoed a blockchain-based approach to audits that focuses on a continuous stream of an organization’s transactions, instead of annual or quarterly reports. Summit audience saw a fully integrated continuous audit and reporting ecosystem for traditional and decentralized enterprises. The audit data combines a standardized transaction model on the back end and XBRL on the front end for dynamic, customizable reports for stakeholders.
6. Demo: SBR is happening down under; businesses and government are both saving
- What is:
- What if? Matt Vickers of Xero outlined what the benefits would be for the United States if Standard Business Reporting (SBR) was adopted, “the economy is 15 times larger, and the tax system and regulatory complexity is comparable. The steps that need to be taken to ensure SBR is successfully implemented include: “1. Developing a single taxonomy and 2. Engaging early with software companies.”
- The Data Coalition continues to push for legislation to replace financial regulatory documents with open data and support a longer-term move towards SBR in the United States. Our sister organization, the Data Foundation, explained how this might work in a report last year, co-published with PwC: Standard Business Report: Open Data to Cut Compliance Costs.
7. Silicon Valley Keynote: Private-public collaboration is key
- Joe Lonsdale, co-founder of Palantir and OpenGov, delivered a comepling keynote address on how our government and Silicon Valley can partner to improve the way government collects and publishes regulatory information. Here’s a snippet:
“It is possible for a team of enterpurers to very meaningfully impact government… I don’t think these things get fixed by insiders. It’s just not how the world ever works. It is always outsiders partnering with allies in the inside and figuring out how to adopt technology that’s going to upgrade all these processes.”
- Joe announced the founding of a new startup, Esper, which will work with regulatory agencies to automate the rulemaking process. Watch his keynote address here!
8. A coming convergence of regulation, technology, and data
- What is? Francis Rose, host of Government Matters, moderated the Convergence Panel, which featured insights that panelists had learnt throughout the day, andbrought the day’s theme together: regulation, technology, and data must be modernized in a coordinated fashion to enable RegTech solutions. Panelists agreed this is “no easy task.”
- What if? Panelist Adam White of GMU said it best when he described what needs to happen for regulation, technology, and data to be modernized: “Agencies need to be brought together in a collaborative way … that would benefit immensely from standardized data and more transparency, allowing agencies to work on a common basis of facts across the board.”
9. Looking ahead: What does the future look like for RegTech?
- What is? More than 200 regulators on the local, state and federal levels have disparate systems. The regulators continue to collect document-based filings, rather than using existing RegTech solutions to collect the information as open, standardized data. And they continue to issue regulations as documents, rather than exploring machine-readable regulation.
- What if? Steven Balla of GMU said THREE things need to happen to transform regulatory information collection and rulemaking from documents into data: 1. “Agency leaders need to position themselves and their organization as innovators. We can underestimate the importance of allies with agencies; 2. We need the relevant authorities in the Executive Branch to have the coordination function, specifically OMB’s Office of Information and Regulatory Affairs; 3. [and,] finally, leadership on Capitol Hill. There is nothing more effective than a law or budget to move organizational behavior.”
- Jim Harper formerly of the Competitive Enterprise Institute got right to the point: “To get all agencies on the same data standards there is on one hand, shame, and then there is political imperative.”
10. The numbers