«Systems So Perfect That No One Will Need to Be Good»? RegTech and the “Human Factor"

RegTech - the use of information technology in the context of supervisory processes - is nothing new, but only a further step in the interactive evolution of finance and information technology. By reducing information asymmetries and their related costs, RegTech allows financial institutions to comply with regulation more efficiently and supervisory authorities to enhance their capacity for deterrence. However, RegTech also presents important perils for the financial system, namely: (1) risks related to technology vulnerability (operational and cybersecurity risks) and (2) automation biases that weaken overall personal responsibility and decisionmaking effectiveness and encourage financial institutions to privilege organizational self-interest over sound management. Moreover, RegTech raises imbalances in resource allocation effectiveness between financial institutions and supervisory authorities. While the former can easily invest in RegTech, the latter are bound by operative constraints and funding discontinuities. In the presence of these issues, the most efficient policy for addressing the evolution underway in supervisory processes is investing in the “human factor.” By (re-)striking the balance between technology and humans, the perils of RegTech are contained for the good of the whole financial system: supervisory processes are subjected to accountable safeguards against technological breakdowns, and human judgment and personal responsibility in decision-making are preserved.