Machine Readable Regulations


We started with two difficult entries to highlight how the major platform shift technologies, blockchain and AI, are bringing out some of the worst impulses in human beings to take advantage of each other. And further, these tendencies become enshrined in software -- from decisions learned out of data, to bots endlessly begging to steal your money. From this perspective we pivot to Regtech, and in particular to projects that we think could be antidotes for the malaise.

The first is an effort by the FCA to explore offering regulations in a machine readable format. That means that a regulator would provide standards and perhaps even executable code that could plug into Fintech software stacks. Imagine Python's Django, but with a regulatory module that pre-packages data formats for compliant reporting. Similar ideas have been floated by self-regulatory organizations in Crypto, looking to build into tokens the ability to determine regulatory requirements, like accredited investor status or KYC/AML. But to do this at the level of the regulator is far more meaningful because (a) there is way more law that needs to be translated, which relates to real rather than imagined economic activity, and (b) this regulation is a result of an established governance process, which is still immature in decentralized communities. Imagine putting all of the FCA on Github and satisfying requirements through something like the Digital Asset Modeling Language. Compliance costs would actually become trivial.

But now is a moment of transition. Case in point, last week we attended the fifth London cohort of the Barclays Techstars, where a RegTech startup called Audit XPRT introduced their automated audit and compliance solution that uses machine learning to extract structured rules from unstructured paper documents. The aspiration is to reduce compliance-related costs ($270 billion) by 90% and achieve 5 months of work in 5 minutes. Another example is Governor, which creates dashboards of real-time tracking across Risk, Compliance and Corporate Governance. Or take Suade, which tags existing data with an overlay that maps to regulatory requirements and provides apps out of the box against which the data can be checked, no disruption to the bank’s current architecture. It may feel slow, but the law's getting digital.


Source: Github (Ethereum proposals), FCA (machine readable initiative), Digital Asset (DAML), Thomson Reuters/Tabb Forum (Infographic), SuadeGovernor (infographic), AuditXPRT