The term ‘cutting-edge’ is banded about all too often in law firm marketing brochures, but the Regulatory Genome Project is truly at the forefront of commercial and legal innovation.
The world of financial services is changing rapidly, and both regulators and regulated firms are struggling to keep up. For regulators, there is a need to introduce new regulations as financial products evolve and to enforce across a wider range than ever before – all while budgets have barely moved. For regulated firms, the pace of new regulations is accelerating (up 700% since the financial crisis of 2008) increasing the cost of compliance for regulated firms (which now stands at more than 5% of revenue) and making it harder to adapt business models in the face of digitisation – at least without introducing more regulatory risk.
In short, this model is unlikely to be sustainable and the current state of the regulatory ecosystem leaves little opportunity for innovation on a large scale.
This is a global and pervasive challenge, meaning that the solution cannot be found in addressing this in silos, either through local initiatives or discrete RegTech solutions. Instead, there is a clear need for a global solution that provides common regulatory standards as well as an efficient way of interpreting these standards.
Born out of research within the University of Cambridge and acting in close collaboration with the university and other key public and private stakeholders, The Regulatory Genome is attempting to provide the answer.
Chambers Student: Can you explain in layman’s terms what the Regulatory Genome Project is, and what problem it is attempting to solve?
The Regulatory Genome is attempting to do two things. The first is to transform human readable regulatory text into machine readable form (a process referred to as regulatory sequencing), which allows this information to be embedded directly into software applications, processes and controls. The second is to provide a global, open standard of representation for regulatory concepts and obligations.
The two goals are complementary and reinforcing. The first digitises regulatory information and the second provides a universal means of interpreting and organising this information that maximises compatibility between all of the different players in the ecosystem. As such, the Regulatory Genome are not just contributing to lowering the cost and risk of compliance but opening up the ecosystem: leveling the playing field between regulators, lowering the barriers to entry for innovation, and removing the switching costs for existing applications.
CS: Who are the main parties involved in the project?
University of Cambridge & Regulators
Combining the University’s research and convening power, in particular the Cambridge Centre for Alternative Finance (CCAF), whose mission is to create and transfer knowledge addressing emergent gaps in the financial sector that supports evidence-based decision-making, has led to involvement with hundreds of regulatory bodies, representatives from more than 20 jurisdictions of which are actively engaged with the Regulatory Genome today.
Regulated firms and RegTechs
Through the collaboration of all parties within the ecosystem, including regulators, regulated firms, and RegTechs; true value of the Regulatory Genome will be extracted.
For example, by joining the Regulatory Genome ecosystem, financial services firms will help regulators to get more complete and up-to-date information about how regulations compare across jurisdictions and how they are being interpreted and implemented, which will allow them to improve. Equally, by joining the project, regulated firms will attract RegTech firms, which will embed or build applications on top of the Genome data, adding more training data that improves the quality of classifiers.
CS: What is the contribution of lawyers to the project?
Financial regulations take various forms of hard and soft law. Lawyers write financial regulation, implement financial regulation and interpret it for financial services practitioners. The capability of lawyers to perform these roles is constantly evolving and the application of machine learning tools is a natural next step. Within Macfarlanes, a group has been established to capitalise on the opportunities presented by the Regulatory Genome.
The Regulatory Genome is intended to provide a platform on which others can generate value. As explained, it provides machine-readable content and a reference repository or map for understanding this. The Regulatory Genome do not synthesise regulatory content or provide any opinions based on it, which opens the door to healthy collaboration with legal firms. Its goal is to make law firms’ jobs easier by providing machine-readable content for, say, horizon-scanning, but not to interpret this content. If it automates some of the initial stages of lawyers’ work, this will make them more productive and move them up the value chain.
CS: Who will be the main beneficiaries?
The initial beneficiaries are the financial and professional services industry. It will help them lower the cost of managing regulatory risk and catalyze innovation and economic opportunity.
In addition, the Regulatory Genome helps the regulatory community to get more complete and up-to-date information about how regulations compare across jurisdictions and how they are being interpreted and implemented, which will allow them to improve them.
Once the Regulatory Genome has moved to the next phase, the landscape of beneficiaries will broaden further and the benefit of the ecosystem becomes even clearer:
- Developers can build new interoperable applications that vendors embed into existing apps
- Researchers can carry out fundamental research which deepens the ontology and improves its executability
- Regulators will provide confidence in the taxonomies, use the platform for benchmarking
- Financial institutions can integrate solutions into their operations and continue to build out the use cases and validate demand for RegTech solutions.
CS: How do you foresee law firms using the project?
Law firms are part of the Regulatory Genome ecosystem and will leverage it to understand existing and future regulatory obligations and to help implement them faster. It will help them provide updates to their clients that are more comprehensive, timely and quicker to generate.
If you’d like to know more or join the Regulatory Genome team as part of an internship, please feel free to reach out to us on: email@example.com