AWS Public Sector Blog
The future of financial regulation: How technology makes finance safer
Digital financial services mean more people can access banking and payments than ever before. However, financial sector regulators face challenges as they fulfill their licensing, supervising, and oversight duties efficiently at an ever-greater scale.
Modern technologies can streamline regulatory processes, enhance decision-making, and scale oversight capabilities to address the growing complexity of globally connected economies. Regulators can harness Supervisory Technology (SupTech) to combine innovation with resilience, efficiency with integrity, and modernization with public trust. By utilizing cloud services, supervisors can rapidly deploy new supervisory tools, adapt to emerging financial risks, and efficiently process vast amounts of regulatory data while maintaining the highest standards of security and operational resilience. Cloud technology provides the agility and cost-effectiveness needed to keep pace with the rapidly evolving financial sector.
To achieve enhanced resilience and operational excellence in cloud-based supervisory systems, supervisory authorities can implement the shared responsibility model with their cloud service provider (CSP). This delineates security and operational accountabilities between both parties.
A white paper produced by Alliance for Innovative Regulation (AIR), and supported by HAQM Web Services (AWS), offers guidance that supervisory authorities can use to implement SupTech. Beyond Pilots and Sandboxes: Regulatory Innovation through SupTech Case Studies and Leading Practices, recommends five steps for success:
- Start with a clear vision
- Develop robust data governance frameworks and analytics capabilities supported by investments in modern cloud-based data platforms and talent
- Collaborate internally and externally on innovation
- Work iteratively and leverage agile methodologies
- Balance innovation with security and resilience
The paper sets out ten core capabilities required for regulators to effectively supervise, monitor, and manage risks in the financial services sector and identifies those that are further ahead and those that could most benefit from knowledge-sharing and collaboration. The core capabilities range from licensing and case management to investigation and enforcement of regulatory violations.
For example, for licensing and case management, regulators can leverage optical character recognition (OCR), natural language processing (NLP), and generative AI capabilities such as large language models (LLMs) to transform how they review and analyze documents such as business plans, financial statements, and compliance records. The AIR report cites the example of The Australian Securities and Investments Commission (ASIC), Australian Prudential Regulation Authority (APRA), and the Reserve Bank of Australia (RBA) which recently worked alongside AWS to build a generative AI proof of concept (PoC) solution to compare, query, and summarize documents. Prioritizing responsible AI principles, the PoC achieved promising results, including as much as 93 percent confidence in some model outputs using publicly available documents. The experiment has been shared with dozens of other regulators and provides a glimpse into the future of regulatory practices and financial oversight.
This is an example of regulatory reporting and data collection, which are fundamental processes for financial regulators, enabling them to make informed decisions to safeguard financial stability. The growing complexity of financial instruments, coupled with the globalization of markets, has resulted in an exponential increase in data volume and diversity.
SupTech solutions can streamline data collection and reporting through automation, advanced analytics, and seamless integration, allowing regulators to process vast datasets efficiently, and maintain data quality and compliance.
For example, the Financial Industry Regulatory Authority (FINRA) operates one of the most sophisticated cloud-based systems for regulatory reporting and data management, overseeing the activities of US brokerage firms and exchange markets. Processing more than 100 billion daily market events, FINRA uses real-time surveillance and analytics to identify unusual trading patterns, detect fraudulent activities, and flag market anomalies. By combining real-time monitoring with historical data analysis, FINRA proactively mitigates risks and maintains compliance. The system’s cloud-based architecture provides scalability, allowing it to adapt seamlessly during periods of increased market activity or volatility, enabling uninterrupted data processing and robust surveillance. Encryption, strong protocols, and disaster recovery mechanisms safeguard data integrity. The adoption of open, standardized data formats enhances interoperability and facilitates efficient communication with external systems, streamlining reporting to other bodies.
The report concludes: “The road to a fully modernized regulatory framework is challenging but achievable. Through strategic investments, thoughtful integration of technology, and unwavering commitment to public trust, regulators can position themselves as stewards of a future-ready financial system, capable of navigating the complexities of the digital age.”