The REGTECH Book

RegTech and the Science of Regulation

By Shirish Netke

CEO, Amberoon Inc

Science Fiction and Banking Reality

In the movie Minority Report, John Anderton is a law enforcement officer and chief of pre-crime in the year 2054 in Washington, DC. In an opening scene, the chief, played by Tom Cruise, arrests a man for murder – a crime he had planned to commit later that day. The premise of the story is that the future could be seen with enough certainty that a criminal could be arrested for a crime even before committing it.

The movie is science fiction. However, the state of the art of data science in predicting the future is not too far behind. A few years ago, Netflix analysed 70,000 attributes of TV shows to predict the success of its series House of Cards. Target analysed shopping patterns to infer a woman was pregnant before her family knew about it. Doctors at the University of Ontario analysed data that could save the lives of premature babies in the ICU by predicting the onset of an infection.

Managing risk in banking is about predicting the future. The banking challenge is to measure, monitor, and analyse data that can be used to predict regulatory risk. Banks use quantitative analysis extensively to predict their exposure to credit risk and market risk. Compliance and regulatory risk, which is a part of operational risk, have traditionally been harder to quantify and to predict. The advent of new technology has the potential to change that.

Modern technology brings the ...