In recent times, regulators have begun to explore the use of technology to help them perform their regulatory and supervisory functions. Known as RegTech (a contraction of the terms “regulatory” and “technology”) and also SupTech (a contraction of the terms ‘supervision’ and ‘technology”), innovation in this area includes the use of natural language processing (NLP) – a form of artificial intelligence – to facilitate and enhance the review of documents by regulators to assess compliance with disclosure requirements. There is a broad range of documents to which such technology might be applied, including corporate accounts, corporate announcements, company prospectuses and financial product disclosure documents.
Developments in RegTech have accompanied developments in FinTech (for a discussion about FinTech and smart contracts, see China Business Law Journal volume 7 issue 8: FinTech and smart contracts).
This column explores the potential that NLP offers in the area of corporate disclosure, and the legal and regulatory implications that arise as a result. These implications include the following: (1) whether technology will change the way in which the language of corporate disclosure and disclosure standards are interpreted by regulators; (2) whether regulators will be able to maintain transparency in relation to how technology is used to monitor and review corporate disclosure; and (3) how to maintain an appropriate degree of human involvement and guarantee trust in the process.
RegTech and its benefits. RegTech is increasingly being used by both firms and regulators for a range of purposes. The use of RegTech by regulators to assist them with their own functions has developed significant momentum over the past three years.
RegTech promises a range of benefits, including enabling firms to undertake compliance work in a more efficient and cost-effective manner, improving managerial discipline by improving the quality of information provided to boards of financial institutions and promoting good corporate governance generally. A range of technologies have been utilized for the purposes of RegTech, including artificial intelligence (AI), blockchain (distributed ledger technology), machine learning, NLP and data analytics.
In recent times, RegTech has been enthusiastically embraced by corporate and financial regulators, which have launched various initiatives and trials with a view to operationalizing technology for regulatory purposes.
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A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at law.asia.