Innovative Technology and Parliamentarism: RegTech and SupTech

  Innovative Technology and Parliamentarism: RegTech and SupTech 

By Ludovica Vecchio and Catinca Iftime | June 30, 2020

Introduction

The International Day of Parliamentarism on June 30, celebrates parliaments and commemorate how they improve peoples’ lives all around the world.[1] Indeed, parliaments are generally considered ‘more conducive to stable democracy’ than other forms of government.[2] Parliamentarism is a rather long-standing model of government. It originally developed in the UK in 1265, ‘when the representatives of English cities and boroughs joined ‘the feudal nobles, bishops and knights of the counties’ in what can be considered the first parliament.[3] In 1858, parliamentarism was first defined as the exercise of ‘the powers belonging to the Crown’ by Ministers who enjoy such powers only so long as ‘they possess the confidence of Parliament’.[4] The modern essence of parliamentarism has not changed: ‘the PM exercises executive power and other ministers, who have the confidence of the legislature’, upon such confidence being lost, elections have to be held.[5] At the same time, with the advent of the digital age, technology has come to play a more critical role for parliaments. As a result, it is paramount that they conduct their mandate in accordance with such advances. Given the ‘large impacts’ that technological developments can have on societies and political agendas, it is a ‘democratic requirement’ that such developments are debated and managed by parliaments.[6] As a result, parliaments have been turning to tech tools ‘to improve their efficiency as institutions’.[7] This blog post will mainly focus on the innovation brought about by the tools of RegTech and SupTech, and how they can be of support to parliaments, and thus advance parliamentarism. After briefly defining RegTech and SupTech, their interrelationship with parliaments will be evaluated. It will be concluded that RegTech and SupTech can develop parliamentarism.

RegTech

RegTech can be considered as the marriage between regulation and technology. [8]  It is mostly used to support the procedures of reporting, adaptation and compliance with internal rules and regulations.[9]  Although Regtech has mostly grown in the financial domain, its application shifted from ‘monitoring corporations for environmental compliance to monitoring trucking companies for speeding infractions to tracking the global location of airliners on a real-time basis’.[10] 

 Emerging technologies, such as big data, artificial intelligence, robotic process automation and blockchain,[11] are the most relevant for RegTech solutions.[12] These new technologies increase the internal organisation in an optimal way by accelerating the manual processes and generating insights that may escape or exceed the capability of data analysis.[13] Moreover, the more efficient processing of more data also leads to access to better information, and ultimately providing benefits for risk aversion and compliance.

The main characteristics of Regtech which help the companies to have a better internal organisation are managing effectively different types of risks, identifying and interpreting the current regulations efficiently and implementing anti-money laundering and anti-terrorism financial systems consistently [14].  Furthermore, monitoring and remediating are the two main functions of Regtech. The majority of Retgch solutions involve the performance of a sort of monitoring function.[15]

More recently, RegTech systems have focused on enhancing the traditional approaches for detecting money laundering and the financing of terrorism.[16] The RegTech technologies for money-laundering include various variables, including social media profiles and networks and[17]artificial intelligence (AI) to monitor financial transactions for anti-money laundering. Such technologies, like AI, are deployed to resolve issues.[18] Other advantages include the harmonisation of data standards nationally, regionally and even globally, real-time transaction analysis, online registration, open source compliance systems and regulatory policy modelling to simulate the [19]

SupTech

SupTech has been defined as ‘the technology for the regulator’. It primarily consists of supervisory authorities relying on technology, especially AI and machine learning (ML), to support their work.[20] ‘SupTech has the potential to enhance human judgement and decision-making and mitigate common supervisory challenges’.[21] It came as a response to a perceived necessity to develop the supervisory system so that it was adequate for the supervised entities. SupTech develops in two main areas of use, namely data collection (automated reporting, data management, virtual assistance, etc.), and data analytics (market surveillance, misconduct analysis, micro-prudential and macro-prudential).[22] Alternatively, SupTech applications can be divided based on the strategy adopted: ‘specific SupTech roadmaps’, and ‘institution-wide digital transformation/data-driven innovation programmes’.[23] The former consists of establishing a specific path of reliance on AI and ML to support the financial authorities, while the latter instead focuses on a general shift ‘to automated/digital processes and systems’ to adopt ‘advanced data analytics tools ultimately’.[24]

SupTech has experienced ‘a marked take-off’ only in 2019.[25] Even though it ‘still is in its infancy’,[26] it can be considered a ‘cutting-edge technology’ [27] that is progressively ‘gaining traction’.[28] In particular, SupTech has gained momentum with the ‘post-crisis regulatory reforms’ as it is focused on reporting requirements to ensure ‘efficient and effective monitoring’.[29] This has been further facilitated by the current ‘exponentially higher and more affordable data storage capability and computer processing power’.[30] Overall, SupTech can be a supportive tool to supervisory activities so long as it is deployed proportionately, i.e. it shall not replace human judgement but help it.[31]

Parliamentarism and RegTech & SupTech

Parliaments are the ‘cornerstone of democracy’: the equal representation of the voice of the people is one of their major priorities.[32] However, it has become ‘increasingly difficult’ for parliaments to be involved in the recent technological developments, given their ‘very complex, technical’ and global nature, going beyond ‘day-to-day politics’.[33] Public debate and controversies in technology have become more intense and universal, with ‘information moving very fast’.[34] As a result, parliaments may be hampered in the pursuance of their mandate if they do not resort to tech themselves. Therefore, it is paramount that they develop the relevant ‘structured knowledge’ to preserve democracy.[35] Indeed, ‘parliaments have to regulate the development and use of technological innovations’ to avoid risks of abuses as well as to deploy them to achieve policy goals, or meet public concerns.[36]  It is argued that SupTech and RegTech constitute the means to accomplish this.

The benefits of SupTech and RegTech are to the people as much as they are to parliaments. They ‘strengthen their efficiency and effectiveness’ of ‘in controlling and serving people’,  while enhancing parliamentary transparency. [37]  On the one hand, the people will be provided with better ways ‘to convey their views to their representatives’.[38] On the other, parliaments will be ‘empowered through the internet (…) to make better decisions based on wider consultation with those they represent’.[39] SupTech and RegTech can thus be used to make parliaments more efficient and representative, along with enhancing accessibility to government services.[40] The ‘horizontal links between government officials and parliamentarians’ are accordingly strengthened,[41] giving rise to an effective system of checks and balances. ‘More effective management and communications systems will assist people’ in holding governments to account by virtue of greater transparency.[42]  This is arguably the most evident way through which RegTech and SupTech advance parliamentarism. Indeed, as noted by the UN General Assembly, parliaments have a ‘role and responsibility’ to ensure ‘greater transparency’,[43] and it has become ‘increasingly politically important to demonstrate that parliament is an open and transparent institution’.[44] SupTech and RegTech have the potential of supporting parliaments in this role and responsibility. In fact, those parliaments which already rely on this technology have declared that they have become ‘more efficient in their internal workings’, extending ‘their knowledge on a vast array of subjects’ which allows them to improve their connection to their electorate.[45]

RegTech and SupTech support parliaments in their mandate in additional ways. On the one hand, RegTech introduces an efficient insight-driven regulation that not only monitors and responds to non-compliance but also facilitates the workflow. Consequently, it is arguable that it will provide regulators with access to the data generated by regulated entities through automated real-time reporting processes, and the regulators will also monitor and evaluate in real-time. On the other hand, SupTech standardises the reports, ultimately ensuring greater harmonisation among institutions.[46] Therefore, Parliaments will be facilitated in their supervisory function. Moreover, it requires high-quality data to function.[47] As a result, by resorting to SupTech, parliaments will be able to identify and address ‘quality issues such as data gaps, inconsistencies and errors, and automate data cleaning, consolidation, validation and quality assurance’.[48] The availability and consequent consideration of a vast amount of data will also increase the ‘accuracy and efficiency of decision-making’. [49] 

Furthermore, SupTech will be used for ‘robotic tasks’ so that supervisory resources will be reassigned to those tasks ‘that depend on human judgement, expertise and experience’.[50] This would altogether enhance the trust in parliament[51] and resolve the broader problem of public disenchantment with politics as they are considered ‘irrelevant’.[52] Through RegTech and SupTech, parliaments will be more responsive to the peoples’ needs. Therefore, their functioning as a means of advancing trust in the institution demonstrates how such technology can be used to endorse parliamentarism. Overall, SupTech and RegTech advance parliamentarism in four main ways: ‘access and participation; adaptation to the political system; the development of democratic identities and political capabilities; the development of public debates’.[53]

At the same time, RegTech and SupTech present some shortcomings such as the vulnerability to error, whereby they might produce the so-called false positives or false negatives.[54] The former indicates those instances where the machine identifies misconduct when there is none, while the latter refers to the machine’s inability ‘to detect actual cases’.[55] Moreover, the vulnerability to and the impact of error are arguably heightened by automation as the incorrect data is duplicated and spread across multiple reports.[56] The perspective of error concerning Parliaments is rather daunting. This is especially so considering how to resort to tech is motivated inter alia by the want for precision, and avoidance of “human error”. Moreover, there are accountability issues for such errors. Overall, excessive reliance on SupTech and RegTech is generally unadvisable and correctly frowned upon.[57] Although we live in’ data-driven culture’ it is questionable whether entirely data-driven authorities are advantageous to our society. Therefore, while it does support Parliamentarism, resort to SupTech shall be proportionate, and the human character of conducting a Parliament shall be preserved.

Overall, SupTech and RegTech are supportive of parliamentarism so long as it is deployed proportionately, i.e. it does not replace human judgement but helps it.[58] To ensure this, it is paramount to bridge the so-called ‘data-knowledge gap’, whereby data availability, quality and storage are expanding at a faster pace than data analytics.[59] Therefore, the concerned authorities must undergo proper training. For instance, supervisory authorities have to be instructed about the differing reliability of the available datasets.[60] In this regard, international cooperation will be beneficial for peer-learning purposes and in smoothing’ resistance to change, internal bureaucracy’ and political opposition which currently constitute the main bars posed to the proper development of SupTech and RegTech.[61] An answer to the challenges posed by the human-machine interaction should include ‘institutionalisation of the public participation in the regulation of technology’.[62]  Overall,  SupTech and RegTech, when deployed proportionately and with the necessary cognisance, have the potential of advancing parliamentarism.

Conclusion

On the International Day of Parliamentarism, we have decided to evaluate whether and how RegTech and SupTech can advance parliamentarism. The parliament, as the cornerstone of democracy, functions through a mechanism based on public dialogue, representative democracy, the rule of law and rights of citizens. Such principles are shaping society, unifying people around many countries to achieve common development goals. In the era of developed democracies with long-standing parliaments, technology plays an essential role in the parliamentarian activity, and parliaments have been increasingly turning to tech tools to enhance their institutional activity. On the one hand, tools like RegTech and SupTech can be of great support to parliaments and thus advance parliamentarism.  RegTech solutions, based on the emerging technologies, increase the internal organisation by accelerating the manual processes and generate keen insights, difficult to grasp by the human eye.  SupTech relies on artificial intelligence and machine learning to support the work of supervisory authorities. Handling more data efficiently, and avoiding risks, means access to accurate information and better decisions. However, excessive reliance on SupTech and RegTech is not advisable. It is necessary to find a balance between technology and the human factor. Moreover, the social character of conducting a parliament needs to be preserved.  Overall, in light of the increasing digitalisation of society and the positive outcomes of those parliaments which have resorted to tech, it is arguable that RegTech and SupTech will play a growing role within parliaments, ultimately advancing parliamentarism.

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[1] UN, ‘International Day of Parliamentarism’ UN (30th June) https://www.un.org/en/observances/parliamentarism-day accessed 25 June 2020.

[2] Anthony W Bradley and Cesare Pinelli, ‘Parliamentarism’ in Michael Rosenfield and András Sajó The Oxofrd Handbook of Comparative Constitutional Law (OUP 2012) 650,670.

[3] ibid 651.

[4] ibid 651.

[5] ibid 651.

[6] Danielle Bütschi and Mara Almeida, ‘Technology Assessment for Parliaments – Towards Reflexive Governance of Innovation’ Klüver et al (eds) Policy-Oriented Technology Assessment Across Europe: Expanding Capacities (Basingstoke: Palgrave Macmillan 2016) 64, 67.

[7] Tess Kingham, ‘e-Parliaments – The Use of Information and Communication Technologies to Improve Parliamentary Processes’ (2003) World Bank Institute Working Paper 28641 17.

[8] Simone di Castri, Matt Grasser and Arend Kulenkampff, Financial Authorities in the Era of Data Abundance, RegTech for Regulators and Suptech Solutions (RegTech for Regulators Accelerator Project, August 2018).

[9] ibid.

[10] D W Arner, J Barberis & R P Buckley, ‘FinTech, RegTech, and the Reconceptualization of Financial Regulation’ (2017) 37(3) Northwestern Journal of International Law and Business 373,385.

[11] ibid.

[12] ibid.

[13] di Castri (n 8)

[14] ibid.

[15] Dan Murphy and Jackson Mueller, Regtech: Opportunities for More Efficient and Effective Regulatory Supervision and Compliance (Milken Institute, July 2018).

[16] di Castri (n 8).

[17] Arner (n 10).

[18] Ibid.

[19] ibid.

[20] Fintechnews Switzerland, ‘What is Suptech? An Overview of this Rapidly Growing Space’ (Fintechnews, 29 October 2019) https://fintechnews.ch/regtech/what-is-suptech-an-overview/31289/ accessed 13 May 2020.

[21] Toronto Centre, SupTech: Leveraging Technology for Better Supervision (Toronto Centre Notes, July 2018) 10.

[22] ibid.

[23] Simone di Castri, Stefan Hohl, Arend Kulenkampff and Jermy Prenio, FSI Insights on Policy Implementation No 19 – the SupTech Generations (Bank for International Settlements, October 2019 [16].

[24] ibid [18-19].

[25] ibid [38].

[26] ibid [47].

[27] Jonah Crane, ‘The Future of RegTech’ (Innovate Finance, 23 June 2017) https://www.innovatefinance.com/uncategorised/observations-fintech-regtech-suptech/.

[28] Di Castri (n 23) [47].

[29] Dirk Broeders and Jermy Prenio, FSI Insights on Policy Implementation No 9 – Innovative Technology in Financial Supervision (SupTech) – the Experience of Early Users (Bank for International Settlements, July 2018) 3.

[30] Toronto (n 24) 2.

[31] Broeders (n 29).

[32] UN (n 1).

[33] Bütschi (n 6) 65.

[34] ibid 67.

[35] ibid 66.

[36] Ibid 66.

[37] Kingham (n 7) 16.

[38] ibid 6.

[39] ibid 6.

[40] ibid.

[41] ibid 26.

[42] ibid 6.

[43] UNGA Res 72/278 (23 May 2018) UN Doc A/RES/72/278.

[44] Mr. Martin Chungong, ‘Lessons learned and future horizons’ (World e-Parliament Conference 2014, Seoul, 10 May 2014).

[45] Kingham (n 7) 6.

[46] Breana Patel, ‘How SupTech will Revolutionise the Regulatory Watchdogs’ (Finextra, 27 November 2017) https://www.finextra.com/blogposting/14784/how-suptech-will-revolutionize-the-regulatory-watchdogs.

[47] Toronto (n 21).

[48] ibid 4.

[49] ibid 4.

[50] ibid 4.

[51] Broeders (n29) 3.

[52] Kingham (n 7) 11.

[53] Kingham (n 7) 19.

[54] Broeders (n 29).

[55] ibid 17.

[56] ibid.

[57] Patel (n 46).

[58] Broeders (n 29).

[59] ibid 20.

[60] Toronto (n 21).

[61]  ibid 10.

[62]  Arner (n 10) 385.

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Toronto Centre, SupTech: Leveraging Technology for Better Supervision (Toronto Centre Notes, July 2018) 10

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