The REGTECH Book

RegTech’s Impact on Trust and Identity

By Michelle Katics

Co-Founder and CEO, PortfolioQuest and BankersLab

Two fundamental conditions are required for a strong financial system: trust and identity. RegTech offers an opportunity to strengthen and scale both, although it is sure to encounter some obstacles along the way. What solutions might be on the horizon, and what will be their social impact?

Tools for Restoring Trust

Trust in the financial sector may have been the biggest casualty of the global financial crisis.¹ This was followed by a perfect storm on trust: hacking incidents, pervasive fraud, pyramid schemes, trading scandals, and financial executive compensation structures inviting moral hazard. To make matters worse, the erosion in trust was systemic. Trust in the financial system is historically based on three pillars:

1. Sovereign state approval and backing of regulated firms.
2. Regulated firms with track records and recognized brands.
3. Rating agency assessments of these firms.

When we talk about the social impacts, we must put ourselves in the shoes of the general public, rather than the policy maker, subject matter expert, or FinTech geek. Society at large looks at the situation thinking, ‘The government was supposed to guarantee our savings in the regulated firms, and now we see the government itself needing a bailout. The regulated firm was supposed to be the safest option for saving or borrowing money, and we have seen these firms either fail or incur large losses ...