Work

RegTech: Technology-driven compliance and its effects on profitability, operations, and market structure

Year: 2024

Type: article

Abstract: Compliance-driven investments in technology—or “RegTech”—are growing rapidly. To understand the effects on the financial sector, we study firms’ responses to new internal control requirements. Affected firms make significant investments in ERP and hardware. These expenditures then enable complementary investments that are leveraged for noncompliance purposes, leading to modest savings from avoided customer complaints and misconduct. IT budgets rise and profits fall, especially at small firms, and acquisition activity and market concentration increase. Our results illustrate how regulation can directly and indirectly affect technology adoption, which in turn affects noncompliance functions and market structure.

Source: Journal of Financial Economics

DOI: 10.1016/j.jfineco.2024.103792

Authors: Ben Charoenwong, Zachary T. Kowaleski, Alan Kwan, Andrew G. Sutherland

Institutions: National University of Singapore, The University of Texas at Austin, University of Hong Kong, Massachusetts Institute of Technology

Language: English

Topic: FinTech, Crowdfunding, Digital Finance

Subfield: Management Information Systems

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $4,250

Funder: University of Hong Kong