e-ISSN 2300-3065 p-ISSN 2300-12402025, volume 14, issue 2 Copernican Journal of Finance & Accounting Date of submission: October 7, 2025; date of acceptance: November 3, 2025. * Contact information: tdziaw@sgh.waw.pl, Banking Institute, Collegium of Socio-Eco- nomics, Warsaw School of Economics, al. Niepodległości 162 street, 02-554 Warszawa, Poland, phone: +48 668 145 140; ORCID ID: https://orcid.org/0000-0001-5910-8997. Dziawgo, T. (2025). Regulatory Technology (Reg Tech) as an enhancement of compliance pro- cesses in financial institutions. Copernican Journal of Finance & Accounting, 14(2), 27–43. http://dx.doi.org/10.12775/CJFA.2025.007 tomasz DzIawgo* Warsaw School of Economics REGULATORY TECHNOLOGY (REG TECH) AS AN ENHANCEMENT OF COMPLIANCE PROCESSES IN FINANCIAL INSTITUTIONS Keywords: Reg Tech, Sup Tech, compliance. J E L Classification: G28, K42, O33. Abstract: This paper explores the evolving role of Regulatory Technology (Reg Tech) as a transformative catalyst in financial compliance. Emerging after intensified reg- ulatory requirements post-2007–2009 subprime financial crisis, Reg Tech leverages technologies such as artificial intelligence (AI), machine learning (ML), blockchain, or cloud computing to enhance both efficiency and effectiveness of compliance process- es in financial institutions. Based on academic literature, industry reports, and real- world case studies, the paper examines key advantages of Reg Tech adoption, including reduced compliance costs, improved risk detection, and enhanced reporting accuracy. It also highlights main barriers such as legacy IT systems, data privacy concerns, and skill gaps within compliance teams. From a policy perspective, the paper analyzes how regulatory authorities are embracing Supervisory Technology (Sup Tech) to modernize oversight functions, improve data collection, and strengthen market surveillance. The dual perspective – Reg Tech for institutions and Sup Tech for regulators – underscores the broader digital transformation of financial regulation. The paper concludes with policy recommendations aimed at fostering Reg Tech adoption through regulatory clar- ity, innovation facilitators, skills development, and stakeholder collaboration. Overall, the study provides a holistic assessment of how technology is reshaping compliance in the financial sector and identifies critical enablers for its responsible and scalable de- Tomasz Dziawgo2828 ployment. Among research questions are: What are the current advantages and risks of adopting Reg Tech solutions in financial institutions? What technological, organiza- tional, and regulatory barriers hinder broader adoption? The hypothesis to be tested is as follows: Reg Tech adoption enhances regulatory compliance processes in finan- cial institutions. In research paper, the following methods are leveraged: qualitative methodological approach focusing primarily on systematic review of academic litera- ture and industry reports on the issue in question, comparative case study analysis of Reg Tech deployment within highlighted financial institutions as well as Sup Tech de- ployments within selected regulatory institutions, secondary expert insights gathered from white papers and publicly available data. Based on the above-mentioned method- ological approach, the hypothesis was tested positively.  Introduction Introduction Regulatory Technology (Reg Tech) has rapidly emerged as a crucial subset of Financial Technology (Fin Tech) in response to the increasing complexity and volume of financial regulations since the global subprime crisis of 2007–2009. In the aftermath of the crisis, regulators worldwide imposed stricter oversight and reporting requirements on financial institutions to prevent similar turmoil (Teichmann, Ruxandra-Boticu & Sergi, 2023). While these reforms improved overall resilience of the financial system, they also significantly raised the cost and burden of compliance for companies. In this context, Reg Tech solutions have gained recognition as innovative tools to transform how compliance is managed, leveraging latest technologies to help organizations meet regulato- ry obligations more efficiently and effectively. Industry reports underline the Reg Tech market’s rapid growth as well. KPMG estimates global Reg Tech mar- ket value to grow by ~25% CAGR within 2022–2028 to ~$86 billion, depict- ing strong demand for tech-driven compliance solutions (KPMG, 2022). This growth underscores the rising impact of Reg Tech in today’s financial sector. This article provides an in-depth examination of Reg Tech’s current state and future prospects, with a particular emphasis on academic and policy perspec- tives. The paper is organized into several sections. Literature review elaborates on main definitions of Reg Tech and maps out the ecosystem of stakeholders and technologies that constitute the Reg Tech landscape. Methodology presents key research questions, hypothesis to be tested, as well as methodological approach that will be leveraged in the research paper. Section “Reg Tech in practice – Key Advantages” explores real-world applications and used cases of Reg Tech in fi- nancial services, illustrating how these tools are being deployed and what ben- efits they offer. Section “Reg Tech – Barriers and Risks” highlights main chal- REGULATORY TECHNOLOGY (REG TECH) AS AN ENHANCEMENT… 2929 lenges against Reg Tech adoption and the potential risks associated with Reg Tech implementations. “Regulatory Perspective & Sup Tech” shifts the focus to regulatory authorities, discussing how regulators view Reg Tech and how they are themselves adopting Supervisory Technology (Sup Tech) to enhance regu- latory functions. Section “Policy Recommendations” emphasizes policy and in- dustry recommendations to foster overall development of the Reg Tech sector, including potential steps for regulators, financial institutions, and technology providers. Finally, the conclusion synthesizes the findings and reflects on poten- tial future of Reg Tech. Through the above-mentioned exploration, it is essential to depict how Reg Tech is reshaping compliance management and what obsta- cles have to be navigated. Literature reviewLiterature review By definition, Reg Tech refers to the use of new technologies to facilitate reg- ulatory compliance and oversight. It leverages a wide range of software and applications that help highly regulated industries – with particular regard to finance – automate or streamline their governance, risk management, and com- pliance processes. For instance, the World Economic Forum (World Economic Forum, 2022) defines Reg Tech as “the application of various new technologi- cal solutions that assist highly regulated industry stakeholders, including reg- ulators, in setting, effectuating and meeting regulatory governance, reporting, compliance, and risk management obligations”. Likewise, UK’s Financial Con- duct Authority (FCA) described Reg Tech as “the use of technology to help reg- ulated firms meet their regulator obligations” (UK’s Financial Conduct Author- ity, 2021). Institute of International Finance (IIF) defines Reg Tech as the “use of new technologies to solve regulatory and compliance requirements more effec- tively and efficiently” (IIF, 2016). M. Folwarski, on the other hand, defines Reg Tech as “entities that are concentrated around solutions based on latest tech- nologies; they ease or solve regulatory and supervisory issues faced by finan- cial institutions” (Folwarski, 2019). S. Kasiewicz states that Reg Tech is a sector consisting of companies that aim to develop and distribute technologies/solu- tions improving regulatory challenges in the economy as a whole (Kasiewicz, 2018). Butler and O’Brien state that Reg Tech “helps firms manage regulatory requirements and compliance imperatives by identifying the impacts of regu- latory provisions on business models, products and services, functional activi- ties, policies, operational procedures and controls […] helps control and manage Tomasz Dziawgo3030 regulatory, financial and non-financial risks; and (d) performs regulatory com- pliance reporting” (Butler & O’Brien, 2019). The Financial Stability Board (Fi- nancial Stability Board, 2020b) notes that for regulated institutions, Reg Tech can “improve compliance outcomes, enhance risk management capabilities, and generate new insights into the business for improved decision-making”, where- as for authorities, certain Reg Tech tools (referred to as Sup Tech when used by regulators) can help “generate real-time indicators of risk to support forward- looking supervision”. These definitions highlight two key components of Reg Tech: efficiency gains (performing compliance tasks faster and at lower cost) and effectiveness gains (achieving better compliance outcomes, with fewer er- rors or data breaches) through technology. Reg Tech has its origins in Fin Tech, but unlike consumer-facing Fin Tech innovations (e.g., mobile payments or robo- advisors), Reg Tech is focused on the back-office of compliance and regulations. Over the past decade, it has evolved from a niche concept into a central compo- nent of financial institutions’ compliance processes and a focus area for policy- makers interested in leveraging technology for improving regulations (Arner, Barberis & Buckley, 2017). It is also essential to highlight key stakeholders in the Reg Tech sector eco- system, each playing a vital role in either developing, implementing, or super- vising Reg Tech solutions. The primary stakeholders include: ■ Regulated financial institutions, such as banks, insurance companies, asset managers, and Fin Tech firms, which are the end-users or clients of Reg Tech solutions. These institutions seek Reg Tech solutions to sup- port with compliance requirements – from AML/ KYC checks to pruden- tial reporting – more efficiently. ■ Reg Tech providers, which range from young startups to more estab- lished tech companies. These providers build and offer compliance soft- ware, data analytics platforms, reporting tools, and other solutions tai- lored to regulatory needs. Many Reg Tech startups have emerged in the past few years, often focusing on niche compliance challenges or lever- aging a specific technology (for example, a machine-learning solution for fraud detection or a blockchain-based system for regulatory reporting). ■ Regulators and supervisory authorities, which impact Reg Tech through the rules and guidelines they set. They also engage directly with the Reg Tech ecosystem via initiatives such as innovation hubs and regulatory sandboxes (Broeders & Prenio, 2018). As noted by the European Bank- REGULATORY TECHNOLOGY (REG TECH) AS AN ENHANCEMENT… 3131 ing Authority (European Banking Authority, 2021), public authorities across jurisdictions have been proactively monitoring Reg Tech develop- ments and collaborating with industry to ensure that regulatory frame- works do not hinder beneficial innovations. ■ Other, such as: – Investors and venture capital, which finance Reg Tech startups. – Industry associations and standards bodies, which may develop com- mon data standards or best practices within sector. Moreover, it is worth mentioning that Reg Tech can be leveraged in cer- tain solution segments addressing different compliance areas. Various classi- fications of such Reg Tech segments exist. EBA identified five areas in which Reg Tech solutions are actively applied in the EU financial sector: Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT), fraud pre- vention, prudential regulatory reporting, ICT security, and creditworthiness assessment (European Banking Authority, 2021). On the other hand, Deloitte distinguishes slightly different breakdown: regulatory reporting, risk man- agement, identity management and control, compliance, as well as transaction monitoring (Deloitte, 2024). Financial Stability Board identified eight various domains: fraud detection, AML/CFT, KYC & identity verification, risk assess- ment, risk reporting, stress testing, microprudential reporting, and macropru- dential reporting (Financial Stability Board, 2020b). Lastly, University of Cam- bridge & EY distinguish the following areas: risk profiling and due diligence, reporting, risk analysis, compliance, and market monitoring (Schizas, McKain, Zhang, Garvey, Ganbold, Hussain, Kumar, Huang, Wang & Yerolemou, 2019). MethodologyMethodology The research paper aims to explore how Reg Tech solutions can support a more efficient, transparent, and error-proof compliance processes in the financial sector. Moreover, it seeks to provide understanding of key technologies lever- aged by Reg Tech solutions, main institutional challenges, as well as potential benefits from adopting Reg Tech solutions. Among research questions are: What are the current advantages and risks of adopting Reg Tech solutions in financial institutions? What technological, organizational, and regulatory barriers hin- der broader adoption? The hypothesis to be tested is as follows: Reg Tech adop- tion enhances regulatory compliance processes in financial institutions. Tomasz Dziawgo3232 In order to verify the above-mentioned research questions and hypothesis, the paper leverages qualitative methodological approach focusing primarily on systematic review of academic literature and industry reports on the issue in question, comparative case study analysis of Reg Tech deployment within high- lighted financial institutions as well as Sup Tech deployments within selected regulatory institutions, and secondary expert insights gathered from white pa- pers and publicly available data. ResultsResults Reg Tech in Practice – Key Advantages Reg Tech in Practice – Key Advantages According to von Solms, development of Reg Tech is driven by three main com- ponents: financial expertise, regulations, and technology (von Solms, 2020). This section aims to depict adopted Reg Tech solutions in particular areas via leveraging latest technologies. Adoption of Reg Tech solutions by financial institutions has accelerated in recent years, though the maturity of implementation varies across institutions, jurisdictions, and compliance domains. Secondary research data indicates that many banks and financial firms have moved beyond experimentation to de- ployment of Reg Tech tools in their processes. A 2021 EBA study, for example, found that ~75% of surveyed banks have Reg Tech projects already in use, rath- er than pilot (European Banking Authority, 2021). In certain areas – notably AML/CFT compliance, fraud detection, and ICT risk – an even higher propor- tion (over 80%) of use-cases had reached full deployment in firms’ workflows. One of the most widespread is AML transaction monitoring and Know-Your- Customer (KYC) processes. Banks are leveraging machine learning algorithms and advanced analytics to monitor transactions for suspicious patterns that might indicate money laundering or fraud (Nowakowski & Waliszewski, 2021), replacing or augmenting the traditional rule-based monitoring systems. These Reg Tech solutions can sift through vast volumes of transaction data in real time and flag anomalies or high-risk customer behaviors more accurately, improving detection of illicit activity (Jeyasingh, 2023). Similarly, for KYC and customer due diligence, Reg Tech tools enable digital identity verification by, for instance, us- ing biometrics or document verification APIs and continuously monitoring client profiles for changes, significantly speeding up onboarding and periodic reviews. Another key area is regulatory reporting and data management. Traditionally, REGULATORY TECHNOLOGY (REG TECH) AS AN ENHANCEMENT… 3333 banks have had to compile large regulatory reports (on capital adequacy, liquid- ity, etc.) manually or via in-house IT systems – a process that is both time-con- suming and labor-intensive. Reg Tech firms offer integrated reporting platforms that connect to an institution’s data sources, automatically extract and trans- form the required data, and generate regulatory reports in the prescribed for- mats. This can significantly improve data consistency and data standardization. A notable example in Europe is the Austrian “AuRep” platform – a collaborative project where banks and the central bank developed a shared data reporting utility – often cited as a Reg Tech innovation that streamlined prudential re- porting through a centralized data model (Broeders & Prenio, 2018). Beyond reporting, risk management and analytics are being improved by Reg Tech so- lutions: for instance, AI-driven tools help in credit risk assessment by analyzing alternative data on borrowers (potentially aiding compliance with responsible lending rules), and scenario modelling tools assist with stress testing and reg- ulatory capital planning. Even relatively new areas of compliance such as ESG reporting (Environmental, Social, Governance metrics) are being supported by Reg Tech, with dedicated platforms emerging to help banks collect and report ESG data in line with regulatory expectations on sustainability. The benefits reported from these real-world implementations are signif- icant. Before wider Reg Tech adoption, according to Banking Compliance In- dex and Compliance Savings Index, financial institutions had to provide at least one Full Time Employee (FTE) for any regulatory change to ensure full com- pliance (Continuity, 2019). Thus, financial institutions often cite increased ef- ficiency and cost savings as the primary drivers for adopting Reg Tech. Auto- mating compliance tasks that were previously manual drastically cuts down the labour hours required. Because of reducing human workload on repetitive checks, Reg Tech allows compliance representatives to focus on higher-value analysis, open-ended cases, and decision-making. Another crucial benefit is im- proved accuracy and risk reduction. By adopting a modern Reg Tech platform, the bank can ingest all trading data and apply machine learning models that learn normal patterns and detect anomalous trading that could signify insider trading or manipulation. Many compliance failures (and resulting fines) in the past have been due to human error, outdated systems, or slow processes. BCG estimated that withing 2009–2020 banking sector alone paid ~$400 billion in fines due to non-compliance (Boston Consulting Group, 2021). Academic stud- ies note that Reg Tech solutions, if implemented correctly, lead to a more con- sistent approach to data quality and monitoring, thus reducing the risk of reg- Tomasz Dziawgo3434 ulatory breaches (Teichmann, Ruxandra-Boticu & Sergi, 2023). This translates into fewer compliance violations, potentially avoiding significant fines and rep- utational damage. Moreover, several Reg Tech tools provide real-time or near- real-time compliance capabilities, which is an important factor (Financial Sta- bility Board, 2017). For instance, traditional compliance reports are compiled once per certain time period (monthly/quarterly), but a Reg Tech dashboard might give management and regulators a daily view of key risk indicators, en- abling proactive intervention (Packin, 2018). Beyond compliance itself, there are several other advantages to be mentioned. Better compliance data and an- alytics can yield insights into a bank’s operations and customers. As the FSB observed, Reg Tech can generate new business insights that improve decision- making process by turning compliance from a check-the-box necessity into a source of competitive advantage (Financial Stability Board, 2020b). For ex- ample, the analysis of customer transaction patterns for AML might also high- light legitimate customer behaviors that inform product marketing or credit scoring improvements (Grassi & Lanfranchi, 2022). Reg Tech – Barriers and Risks Reg Tech – Barriers and Risks While the promise of Reg Tech is considerable, the journey to implement these technologies is often impeded by significant barriers. Financial institutions face both internal and external challenges when adopting Reg Tech solutions. A major set of hurdles is technological and data-related. Many banks struggle with legacy IT systems and data silos that make it difficult to integrate new Reg Tech tools (European Banking Authority, 2021). Bank’s compliance data might be spread across outdated databases and formats, and a Reg Tech solution may require consolidated, well-structured data inputs or connectivity via modern APIs. EBA found that “interoperability and integration with existing legacy sys- tems” is one of the top challenges cited by financial institutions, with vast ma- jority of surveyed banks indicating that integration issues pose a major obsta- cle to Reg Tech uptake. Moreover, data privacy and security considerations are to be discussed as well. On one hand, Reg Tech often requires pooling and ana- lyzing sensitive information (customer data, transaction records, etc.), but pri- vacy regulations (like GDPR in the EU) restrict how data can be shared with third-party providers. Banks are understandably cautious about sending data to cloud-based Reg Tech solutions or startups, fearing breaches or legal viola- tions (European Banking Authority, 2021). REGULATORY TECHNOLOGY (REG TECH) AS AN ENHANCEMENT… 3535 A critical barrier to Reg tech adoption is the lack of necessary skills and awareness. On the financial institution side, the effective use of Reg Tech re- quires compliance teams to have or develop a required level of technological proficiency, e.g., understanding how AI models work, interpreting data output, or managing cloud-based tools. Many institutions cite a skills gap, i.e., current staff are experts in compliance rules but not in data science or IT, which can hin- der successful deployment of Reg Tech tool (European Banking Authority, 2021). From the Reg Tech vendor side, a complementary issue is that numerous financial institutions have limited awareness or understanding of Reg Tech offerings. Providers observe that a large share of potential bank clients are not fully aware of what Reg Tech solutions exist or how they could benefit from them. In surveys, Reg Tech providers reported that the “lack of buyer aware- ness of Reg Tech’s potential” is widespread – with some estimating over half of banks have low awareness in certain tech domains (European Banking Au- thority, 2021). This lack of understanding can lead towards skepticism; for ex- ample, bank executives might perceive Reg Tech startups as too immature with unproven solutions, thus being hesitant to adopt them. Another external barrier is the lack of harmonization in rules and standards across jurisdictions (Papantoniou, 2022). Especially for international banks or Reg Tech providers aiming to serve multiple markets, divergent national regu- lations mean solutions must be customized for each jurisdiction, losing econo- mies of scale. For example, differing AML rules or reporting formats country by country prevent a “one-size” Reg Tech product – providers perceive this frag- mentation as a key obstacle to wider market adoption. Apart from adoption barriers, it is crucial to address the risks associated with Reg Tech implementation as well. Introducing advanced tech into com- pliance processes can create new failure modes if not properly managed. Reg- ulators and risk managers have underlined potential operational and compli- ance risks stemming from heavy reliance on Reg Tech tools (Financial Stability Board, 2020a). A primary concern is compliance risk itself – the risk that an in- stitution, by relying on a Reg Tech solution, might actually fail to comply with regulations due to errors or limitations of the technology. Another significant risk area is operational dependence and third-party risk. When a financial institution relies on a third-party Reg Tech provider for critical compliance functions, it incurs concentration risk and outsourcing risk. It is pos- sible that if many financial institutions rely on the same Reg Tech provider, this particular provider could become a “systemically important third party whose Tomasz Dziawgo3636 failure would have system-wide implications” (European Banking Authority, 2021). Even if not systemic, the failure or service disruption at a provider could leave client financial institutions unable to fulfill key tasks. This relates to busi- ness continuity risk – outages or downtime in Reg Tech services could interrupt a bank’s compliance processes as a whole. Moreover, if a Reg Tech provider goes out of business or withdraws a product, client firms may find themselves strug- gling to replace the function. Furthermore, ICT and cybersecurity risks are par- amount. Using cutting-edge tech means dealing with potential vulnerabilities: data breaches, hacking of compliance systems, or simply IT failures. If a Reg Tech tool is cloud-based, concerns could appear such as: Does the bank know where its data is stored? Is it in a jurisdiction with strong data protection? If not, this could violate regulations or pose security concerns (Financial Stability Board, 2020b). Regulatory Perspective & Sup Tech Regulatory Perspective & Sup Tech Regulators and supervisors have a unique dual perspective on Reg Tech. On one hand, they encourage and monitor the adoption of Reg Tech by industry as a means to improve compliance outcomes; on the other hand, they are them- selves adopters of technology (Sup Tech) to enhance their supervisory capabili- ties (Dziawgo, 2021). Policymakers recognize that Reg Tech can help address the challenges of supervising a complex, data-heavy financial system, and they do not want regulatory frameworks to unduly impede beneficial technological progress (Broeders & Prenio, 2018). From the regulator’s perspective on industry Reg Tech, a key interest is how these tools can improve regulatory compliance and reduce systemic risk. The Financial Stability Board’s 2020 report highlighted that Reg Tech for firms could improve compliance outcomes and risk management, which, in turn, ben- efits regulators by strengthening the overall resilience of the financial system (Financial Stability Board, 2020b). Moreover, regulators see potential in Reg Tech to produce higher-quality and more timely data (Banaś, 2024). Traditional regulatory reporting often involves significant lag (data is weeks or months old by the time regulators see it) and potential errors. If, through above-mentioned solutions, supervisors can gain access to cleaner data in near-real-time, they can conduct more effective oversight (Broeders & Prenio, 2018). A natural extension of regulators’ interest in Reg Tech is the rise of Sup Tech (Supervisory Technology) – the use of similar innovative tech by regulatory REGULATORY TECHNOLOGY (REG TECH) AS AN ENHANCEMENT… 3737 authorities themselves. Sup Tech has quickly become a strategic priority for many regulators, as they face their own challenges of limited resources and an explosion of data to analyze. In essence, Sup Tech aims to digitize and mod- ernize supervisory processes, making oversight more data-driven and effec- tive (World Bank Group, 2021). Sup Tech solutions generally fall into two broad categories: data collection and management, and data analytics for supervision (Broeders & Prenio, 2018). In the data collection and management, Sup Tech includes tools to improve how regulators gather information from regulated entities (Dziawgo, 2021). This ranges from automated regulatory reporting – where instead of submitting reports, firms might provide regulators with di- rect data feeds or use standardized data models to allow automated data pulls – to advanced systems for data validation and visualization on the supervisory side. For example, some central banks have introduced API-based reporting to directly receive granular data (Australian Securities & Investments Commis- sion). The Austrian AuRep platform mentioned earlier is a collaborative Sup Tech/Reg Tech initiative: banks send data to a centralized “data cube” acces- sible to the regulator, reducing duplication of reporting (Austrian Reporting Services). Other Sup Tech data collection innovations include machine-reada- ble regulation – Monetary Authority of Singapore have piloted this, aiming to provide rules in a format that both firms and regulators’ software can under- stand (Monetary Authority of Singapore). On the data analytics side, Sup Tech encompasses a variety of applications: market surveillance tools that use big data techniques to monitor trading markets for anomalies; misconduct analy- sis, which might involve scanning disclosures, social media, or complaints for indications of misconduct; and micro-prudential supervision analytics, where machine learning might help identify banks with early signs of trouble by de- tecting patterns in their reported metrics (Broeders & Prenio, 2018). For in- stance, the Bank of Italy has combined structured data (like suspicious trans- action reports) with unstructured data (like news articles) to better identify money laundering trends (Bank of Italy). These Sup Tech initiatives mirror the private sector’s Reg Tech in many ways, but are tailored to regulatory goals. Global surveys indicate that Sup Tech adoption has accelerated among regula- tors since the mid-2010s. The FSB’s survey of its member regulators showed that by 2020, the majority had some form of Sup Tech or innovation strategy in place, a sharp increase from a few years prior (Financial Stability Board, 2020b). Regulators hope Sup Tech will allow them to keep pace with the fast- Tomasz Dziawgo3838 moving, complex financial sector by leveraging the same technologies that pri- vate companies are using. Importantly, regulators acknowledge that with the benefits of Sup Tech come new risks and responsibilities. The FSB’s work highlighted concerns among supervisors about resource and expertise constraints – adopting Sup Tech requires attracting data scientists and technologists into regulatory agen- cies, which can be difficult given competition with the private sector (Financial Stability Board, 2020a). There is also cybersecurity risk: as regulators handle more granular and potentially personally identifiable data through Sup Tech systems, they become targets for cyber attacks, necessitating robust defences. As such, many authorities are moving cautiously – piloting Sup Tech internally, sharing lessons in forums, and establishing governance frameworks. In summary, from the regulators’ viewpoint, Reg Tech and Sup Tech are two sides of a transformative coin. They present an opportunity to create a more efficient, responsive, and data-driven regulatory regime that benefits both in- dustry and supervisors. Regulators are striving to strike the right balance: promoting and adopting innovation to keep up with the industry, while main- taining vigilance about the new risks and ensuring that core regulatory ob- jectives – consumer protection, market integrity, and financial stability – are upheld or strengthened in the process. This perspective informs many of the policy initiatives and recommendations that have emerged around Reg Tech. Policy RecommendationsPolicy Recommendations Given the analysis above, a number of policy and industry measures are rec- ommended to further highlight benefits of Reg Tech while mitigating its risks. These recommendations target key stakeholders – regulators, financial insti- tutions, and Reg Tech solutions providers: 1) Provide clear regulatory guidance and expectations: Regulatory au- thorities should issue formal guidance or supervisory statements on the use of innovative compliance technologies. By articulating superviso- ry expectations (e.g., requirements for model validation, data security standards, and documentation for automated processes), regulators can encourage financial institutions to adopt Reg Tech solutions with confi- dence. Regulatory sandboxes and pilot programs can be used to refine such guidance. As previously noted, a lack of standardization in regula- REGULATORY TECHNOLOGY (REG TECH) AS AN ENHANCEMENT… 3939 tory data and inconsistent regulations across jurisdictions hamper Reg Tech scalability (European Banking Authority, 2021). 2) Leverage innovation facilitators (regulatory sandboxes, hubs): Reg- ulators should continue to use and expand innovation facilitators as a means to test and refine Reg Tech and Sup Tech in a controlled environ- ment (Grassi & Lanfranchi, 2022). Regulatory sandboxes allow firms to experiment with new Reg Tech solutions with supervisory oversight and feedback, helping identify both the benefits and any regulatory gaps or risks that need addressing. Through such collaboration, regulators can collectively develop best practices on approving novel solutions. Joint industry-regulator tech sprints (hackathons) focused on compliance problems are another collaborative tool that has shown success (e.g., the FCA’s tech sprints on AML compliance). The recommendation is for regu- lators to actively invite Reg Tech firms and banks to participate in solv- ing regulatory challenges – this builds mutual understanding and can even lead to co-developed Sup Tech tools. In addition, establishing fo- rums where banks, Reg Tech providers, and regulators regularly meet (either under industry associations or regulatory committees) can help in knowledge-sharing and aligning expectations. Such engagement en- sures that when new rules are being drafted, the potential for Reg Tech solutions is considered, and conversely, that Reg Tech developers under- stand the regulatory nuances of the problems they are tackling. 3) Enhance skills and capacity building: A recurring theme is the need to invest in human capital – both within regulatory agencies and finan- cial institutions – to effectively integrate technology into compliance. Regulators should train their supervisors in data science and modern IT to better assess firms’ Reg Tech deployments and to use Sup Tech tools. Likewise, banks and other financial institutions should upskill com- pliance and risk teams, perhaps hiring more personnel with technol- ogy/ data science backgrounds, to bridge the gap between compliance expertise and technology expertise. Governments and industry bodies might facilitate this by developing specialized training programs or cer- tifications for “Reg Tech professionals” (similar to how there are certifi- cations for risk management or AML officers). 4) Promote Stakeholder Collaboration and Ecosystem Growth: To address the challenge of low awareness and trust in Reg Tech, stakeholders should take collective action to promote success stories and foster a community Tomasz Dziawgo4040 of practice. Industry associations, perhaps under guidance from regu- lators, can publish case studies where Reg Tech implementation led to clear improvements in compliance, thereby demonstrating the tangible benefits. Regulators can also highlight instances (anonymized or in ag- gregate) where firms using advanced analytics saw better compliance outcomes, to encourage peers. Concretely, this could include government incentives for innovation (grants or tax credits for Reg Tech R&D), incu- bator programs for Reg Tech startups, or prize competitions for solu- tions to pressing regulatory problems. Large financial institutions might consider adopting a more open approach, like partnering with startups or providing anonymized datasets for development of new compliance algorithms; this kind of cross-industry collaboration can accelerate in- novation. Furthermore, data sharing frameworks could be developed for compliance purposes, in a privacy-compliant manner. For example, in fighting financial crime, banks and regulators are exploring privacy- preserving techniques to share intelligence about threats. Facilitating such collaboration (with appropriate legal safe harbors) can amplify the effectiveness of both Reg Tech and traditional efforts. Collaboration also means aligning Reg Tech developments with broader initiatives such as cybersecurity frameworks and data privacy regimes, ensuring that they move in harmony rather than at cross-purposes.  Conclusion Conclusion Regulatory Technology (Reg Tech) has emerged as an integral component of modern financial regulation and compliance management. This expanded anal- ysis has shown that Reg Tech solutions are able to significantly improve how financial institutions meet regulatory obligations – by automating repetitive tasks, analyzing risks with greater precision, and facilitating more timely and transparent reporting. At the same time, adopting these technologies is not without challenges, and it necessitates a rethinking of traditional compliance paradigms. Therefore, based on the above, the following hypothesis might be formulated: Reg Tech adoption enhances regulatory compliance processes in fi- nancial institutions was tested positively. REGULATORY TECHNOLOGY (REG TECH) AS AN ENHANCEMENT… 4141 From an academic and policy perspective, it is clear that Reg Tech’s rise is driven by significant trends – development of technologies, regulations, and in- creasing financial expertise Financial institutions that leverage Reg Tech solu- tions can benefit from not only reduced compliance costs, but also in enhanced risk management and business insights, as already proved by secondary data. Regulators, too, stand to benefit by embracing Sup Tech, potentially overseeing the financial system with greater insight than was previously possible. How- ever, if Reg Tech solutions are improperly implemented or overseen, they can introduce new vulnerabilities: algorithmic biases, cyber threats, systemic con- centration risks, etc. The “human element”, i.e., expertise or ethical consider- ations, will remain essential. Therefore, it can be assumed that the future of Reg Tech will involve a model of augmented compliance: a partnership between “human” professionals and technology systems, each complementing the other. Compliance officers could work alongside data scientists; regulators will com- bine traditional examinations with analytical dashboards. Policy developments in the coming years will be instrumental in shaping Reg Tech’s trajectory. It is encouraging that regulators worldwide are actively engaging with technology and with industry players – through innovation of- fices, guidelines, and international coordination – to ensure that rules adapt to technological change. The recommendations outlined in the previous section, if implemented, would go a long way to address current pain points. Looking ahead, several emerging technologies and trends could further transform Reg Tech. Developments in artificial intelligence might enable even more sophisticated compliance analytics that regulators are comfortable with. Blockchain and Distributed Ledger Technology (DLT) could play a big- ger role in areas such as regulatory reporting, providing regulators with re- al-time visibility into transactions while preserving privacy through cryptog- raphy. Open banking and API ecosystems may ease the integration challenge by standardizing how financial data is exchanged, thus benefitting Reg Tech deployment. Moreover, as financial services extend into decentralized finance (DeFi) and other novel spaces, Reg Tech will also need to evolve to address com- pliance in those areas. Tomasz Dziawgo4242  References References Arner, D., Barberis, J., & Buckley, R. (2017). 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