Let’s Talk About the Tech in RegTech

Shaping Global Markets Podcast Episode 3, Part 2

As Regulatory Technology, or RegTech, continues to permeate throughout the financial and regulatory sector, there’s a race to find the next-generation use case for this powerful technology that is currently, primarily used to create standardization and a unified state for critical financial information and data.

"What’s truly fascinating is we know, it’s a good idea to have regulatory technology, to regulate and to have information available, but how do we make that into something much more. A movement or an exciting type of space that people want to be in and want to be a part of."
- Floyd Strimling, CPO

What’s next for RegTech?

When the benefits of RegTech are vast, wildly untapped, and, the industry is primed for innovation, it’s clear things are about to get really interesting.

Tune in to part two of Shaping Global Markets, episode 3, where we’re joined by Floyd Strimling, chief product officer at DFIN, to discuss the market influences that led to RegTech’s development, evolution and future opportunities.
Don’t forget to listen to part one too. We discuss the regulatory side of RegTech with Eric Johnson, president of Global Investment Companies at DFIN.

Listen to Part 2 below.


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TRANSCRIPT

[Nataly Arber] Welcome back to Shaping Global Markets, a series focused on key topics in the regulatory and financial technology space. I’m Nataly, your host. And every episode, I'm joined by industry experts to discuss interesting and relevant ideas, and answer timely questions about where the industry is headed. As always, we would love to hear from you about topics you want us to cover. So please, subscribe, leave a comment, or follow us on Twitter @DFINsolutions.

This is actually part two of a mini-series we’re doing around RegTech, so if you’re just tuning in, you might want to go back and check out part one where we speak with Eric Johnson, president of Global Investment Companies at DFIN. With Eric, we focused more on the regulatory, or reg side of things. We talked about what makes RegTech unique and its potential future applications. We also touched on the challenges the industry might face when adapting to a more automated regulatory compliance landscape. So definitely check that episode out.

Today, I’m speaking with DFIN’s Chief Product Officer, Floyd Strimling, to talk more about the evolution that led to today’s greatest RegTech opportunities. And we’ll be focusing more on the tech side of things, getting his perspective on the future of next generation technologies in the space. So, without further ado, I’d like to welcome Floyd to the podcast.

Hi Floyd, thanks so much for joining me.

[Floyd Strimling] Hi Nataly, thanks for having me.

[Nataly] It’s certainly an interesting time to be discussing the advancements in the regulatory compliance space, but before we dive in, can you tell me a little bit about yourself and your career leading up to today?

[Floyd] Sure. I would say that I’m a man of faith, a husband, a father, friend, person who is extremely busy with all that brings. I have had a bit of an unconventional path to where I am today, and unfortunately, I’ve seen a lot; been through the tragedy of 9/11, the dot com bust, the great recession #2, and of course now this current pandemic. I fell in love with startups, and that gave me a chance to do many different jobs and meet many interesting people who shaped really who I am in business, and who I am as a person.

Prior to coming to DFIN, I was working at SAP, and that’s where I fell in love with really what they described as “end-to-end enterprise application software,” and really it’s its role in automation and how it fits within at that time the changing world of cloud computing and also this digital transformation that’s going on. So, for me, I came to DFIN as my chance to simply stop talking about this digital transformation and actually do one. So, what’s great is that as Chief Product Officer I have direct responsibility for engineering and for product and work closely with every aspect of the business, and really help drive this digital transformation, and I’m really, really encouraged by the trajectory and the path that we’re on, and can’t wait to see what the future brings us.

[Nataly] Thanks for that introduction, Floyd. I love what you said about being excited to do a digital transformation and not just be talking about one. Transformation is actually a beautiful segue to my next question and a great place to for us to start this discussion, because RegTech was born out of necessity for change in a lot of ways and has pushed the industry to move faster through its own digital transformation.

So, let’s just take a little step back. Can you talk about what the initial catalyst for regulatory technology was?

[Floyd] Yeah. Unfortunately, regulatory technology has always been the product of something that’s happened that has created a climate where regulation becomes necessary. If you think about it, regulation is a topic that continues to be a hot topic in the country, in the United States but also in the world on how much is too much and what do we actually need.

It’s going to go someplace that probably I don’t know yet, and you don’t know yet, but somebody’s going to create an application or a use case for this that’s going to take it beyond where we are. And the only reason why I can’t tell you right now where that’s going, is because we’re still in the infancy of where we are today.

But really the first piece of regulatory legislation that I look at is really the Sarbanes Oxley Act of 2002. And that act really was a way to really apply regulation to privately held companies, and it was a way to really look at how things were happening with some of the public companies and other things that were going on around Enron and WorldCom, which were huge names at the time. So, it also covers the responsibilities of a public company, and especially how its board of directors should act.

That Act itself changed a lot of things, it created a lot of companies and a lot of momentum for what I would say is the beginnings of this RegTech kind of world. And I think it kept going, and really, the next one that I would point to probably is 2010 with the Dodd Frank Act, which was because of what had happened with Wall Street and the crashes we experienced. It changed the way that we would look to regulate ourselves and the things that we’re looking for around different agencies and the government, and what the government’s looking for in each of these pieces.

I also think just the very act of the SEC is there to protect investors, and as things get bigger and bigger and more important, I think that you’re starting to see that the role of the SEC is getting more expansive, especially as things move more towards digital and less towards paper, where things move so fast, you need to change the way you view things to get through it.

[Nataly] Exactly. I like how you phrase that. As we continue to move faster, we rely on technology to gather information, but also organize it in a way that can be consumed easily. So, to your point, as the SEC plays a bigger and bigger role and regulations have more of an impact on businesses, it’s natural to look for optimizations that will aid us in moving faster. But I’m also curious because in an industry that relies heavily on compliance and risk management, it would seem the barriers for adopting new technology would be quite high, so can you talk a little bit about the greatest challenges that you see standing in the way of RegTech and its applications across the industry?

[Floyd] Yeah, I think the challenges around RegTech are really, are, there’s a lot of them. And, you know, one of the big challenges is in the changing regulations themselves, within the federal government and the other governments that you look at. It’s not just at a federal or at the highest levels, it’s now down to, in the U.S., state levels, in Europe it’s the E.U. and the individual countries, in Asia you have different countries that have different types of Acts that they have to adhere to.

I think really the barrier here is how to get more modern technology involved in regulatory tech. And then also how to share information and share really important information and be able to analyze it at a much faster rate, so that people can use that information for a desired outcome.

I think really the barrier here is how to get more modern technology involved in regulatory tech. And then also how to share information and share really important information and be able to analyze it at a much faster rate, so that people can use that information for a desired outcome. Yeah, I think the challenges around RegTech are really, are, there’s a lot of them. And, you know, one of the big challenges is in the changing regulations themselves, within the federal government and the other governments that you look at. It’s not just at a federal or at the highest levels, it’s now down to, in the U.S., state levels, in Europe it’s the E.U. and the individual countries, in Asia you have different countries that have different types of Acts that they have to adhere to.

I think really the barrier here is how to get more modern technology involved in regulatory tech. And then also how to share information and share really important information and be able to analyze it at a much faster rate, so that people can use that information for a desired outcome. It’s got to be more than just reporting in and then figuring out what you did wrong, it’s got to be able to be used by individual investors, by individual companies, by other entities to push this forward. And of the big things that the way that we want to use this versus how it’s being used today is very interesting to say the least.

One of the examples I use, and I will still use it, is if you just look at automobiles, and in an automobile sense we all drive a car. I’ve had many different brands in my life. I have some loyalty to some things I don’t have to others, but I never felt I was drawn to something or part of a movement. If you just look like, what companies, like Tesla have done, to take something like build a car, make changes, yes there’s enhancements and features like over the air software and other things, and the electric part of it. But, at the end of the day they’ve now transformed something that we all use and thought we knew, into something new and exciting, and they’ve given birth to other companies that are doing similar things in trucks, and in big rigs, and other things, that are moving this forward.

So, I think what’s truly fascinating is how something that we know, and we think it needs to be done, it’s a good idea to have regulatory technology, it’s a good idea to regulate and to have information available, but how to make that into something much more. A movement or an exciting type of space that people want to be in and want to be a part of.

[Nataly] There’s got to be more to it than finding an exciting niche, right? I think a large part of it is showing a company’s expertise and foresight for reimagining what the technology could be used for. To say it in a different way I suppose, there’s a lot of value in imagining the unique applications of, in our case RegTech, and defining the various problems it can solve. But before we can all reimagine that future, maybe you can share a little bit of what the current use cases for RegTech are; and then I’d love to hear from your perspective what a potential future application could look like making RegTech more exciting.

[Floyd] Yea, so if I look at, if I just look at what people are doing with this right now, you know RegTech started off with just filing a report, and there are wholesale parts of the industry that you still file, print and publish a report and hand it in. You know, turn in your term paper and now I’m in compliance. And then we started moving towards this ability to do more with HTML and EDGAR HTML and really pushed that into a way to signal and move things into the regulatory bodies.

And then something called XBRL was born. And XBRL was really born out of this need to do more than what you can get out of this standard type of HTML and even EDGAR HTML, but it had its shortcomings as well, and now we’re on our next generation, which is really called Inline XBRL, which, I believe, has the ability to take off beyond where it is today. We’re seeing now not only are the governments using it but we’re seeing it now being used by state and local municipalities and specific industries are looking at it because it has so many advantages, and allows really for the tagging of an object inside of a document or of a piece of data that can then be used comparatively and analytically around multiple different sets of data. It has a fascinating use case that you can use to help the regulatory bodies as well as the individual companies.

It also has the ability for, say, you and I to build really interesting applications with that data itself that enables you to do comparisons without having to store that information, without even really knowing nothing more than the tag name that would contain that data itself.

So, I think this next substantiation of how we’re going to communicate, we’re at a path now where I believe we’re finally at a unified state where iXBRL is the right way to do this, and then this is leading to a lot of innovations in the space. Most of it really has been in the creation of that information that we want to file.

I think that’s where it gets really interesting, the untapped space, there are tools that allow us to do it but I would tell you most people don’t really know because it’s not the technology, it’s not what’s important, it’s what you do with it. We got to get to the point where we could do something with this, not that I care, or you care, or a CFO, or anyone, cares about iXBRL, but will care about what the end result is of that technology.

And that means how do I as a company, public, private entity, create this information and then provide it to the government in a way that they need it, or in a way that the entity, the way that they need to consume it, and then know for a fact that I’m compliant based on what was given. So, I see a next generation of RegTech now, coming up because of this application around this kind of unification around one way of tagging and marking it, and I also see that a lot of people are seeing the benefit of the technology as a whole.

[Nataly] Maybe it would be helpful if you could define a few of the benefits of using RegTech, not so much the surface level ones that might come to mind like organizing data, optimizing reporting, obviously supporting regulatory compliance, but what are some of those farther-reaching benefits and values to using RegTech that we don’t always bring to mind?