Regulation, strategy, and leadership in RegTech
In the rapidly evolving world of financial markets, regulatory technology (RegTech) plays a critical role in ensuring that institutions comply with ever-tightening regulations. To gain a deeper understanding of the current and future state of the RegTech sector, we spoke with Jonathan Dixon, Head of Trade Surveillance at eflow Global. Jonathan has more than a decade of experience across various facets of market surveillance, including client-side, vendor-side, exchange-side, and consultancy roles. His extensive knowledge in this space positions him as a leading authority on the subject.
In this article, Jonathan shares his insights on regulatory harmonisation, the relationship between regulators and RegTech providers, the strategic goals for eflow, and the balance between innovation and compliance.
The impact of global regulatory harmonisation on the RegTech market
Global regulatory harmonisation has become a key focus for many financial institutions and regulators as markets become more interconnected and the need for consistent standards increases. Jonathan views this development positively for the RegTech industry.
“I think it will only help. I think the more standardisation there is, the better the markets will be,” he explains. “Surveillance is largely in this place already in that the major markets—Singapore, Hong Kong, Europe, the US, and the UK—have very similar regulatory regimes in terms of what they’ve got, albeit with different approaches to implementation of rules. The MAS has a more collaborative approach with businesses than the enforcement first approach of the SEC for example.”
Jonathan notes that the definitions of common forms of market manipulation, such as spoofing, layering, wash trading, and insider trading, are already consistent across these markets. “The forms and standards of market manipulation and insider dealing definitions are largely very, very similar. So I think they’re already there in terms of what’s looked for. Greater cooperation, I’d say, will be the next place to go.”
However, Jonathan acknowledges the potential for fragmentation due to national interests. “Is there any danger of tribalism whereby one regulator or a government wants to look after their market and maintain a greater degree of control? I think everyone wants to exclude bad actors from their markets,” he remarks.
Jonathan stresses the importance of cooperation between regulators, particularly when it comes to identifying and addressing market abuse. “There is communication between regulators. Making others aware of who the bad actors are and why they’re suspected of market manipulation or market abuse in their own individual markets would be helpful; especially when it crosses regulatory regimes - such as communication between the EU and the US.”
The greater the communication between global regulators, the easier it will be to identify patterns of abuse across markets, leading to stronger enforcement and improved market integrity.
Regulatory developments and their impact on RegTech firms
When considering the future of regulation, Jonathan points to both opportunities and potential threats for RegTech firms. One significant concern is the possibility of a regulatory rollback in key markets such as the US.
“For me, the biggest existential threat is the rolling back of the regulatory environment, which you might see in a highly politicised American environment,” Jonathan explains. He suggests that a shift toward self-regulation could undermine the progress made in market oversight. “Self-regulation by the markets… I think history has shown that the markets are generally good at self-regulating, but when they’re bad, they’re awful and risks can move beyond the conceptual to the existential.”
Jonathan is cautious about the risks of deregulation, particularly in light of past financial crises. “We’re still feeling the aftereffects of bailing out pretty much every bank in the Western world. Do we want that again, just to say that we’re self-regulating? It’s too big a risk, personally.”
The tightening or loosening of regulations will have a significant impact on RegTech firms, shaping their role in maintaining market integrity. A strong regulatory framework ensures demand for advanced surveillance and compliance tools, whereas deregulation could stifle innovation in the industry.
The evolving relationship between regulators and RegTech providers
The relationship between regulators and RegTech providers has evolved significantly in recent years, with regulators increasingly recognising the value of engaging with industry experts. Jonathan highlights how open regulators, such as the UK’s Financial Conduct Authority (FCA), have been to engaging with RegTech vendors like eflow.
“I’ve been invited by the regulator, the FCA, to come in and chat to them. I can’t say what about in detail, but they are open to speaking to vendors,” Jonathan explains. This marks a shift in how regulators interact with the industry, moving from a more closed approach to one that values input from experts who are developing the tools needed for market oversight.
Jonathan notes that these interactions are not about forming partnerships but rather about discussing the practical application of new technologies, such as AI and machine learning. “I can say from the time I’ve been on the vendor side, they’ve been very open to discussing things. This is not about making us their new surveillance partner, but at least chatting about topics such as AI, machine learning, and what our plans are.”
This evolving relationship underscores the importance of collaboration between regulators and RegTech providers. As Jonathan points out, vendors have the resources and expertise to create solutions, while regulators bring the broader market oversight perspective and access to large data sets. This collaboration will be vital as regulations and technologies continue to develop over the coming years.
Strategic goals for eflow’s future
Looking ahead, Jonathan shares eflow’s long-term strategic goals, emphasising the company’s commitment to staying at the forefront of the industry through product innovation and technology advancements.
“Strategically, we want to make the product as good as it can be, and that includes things like having really high-quality order book replays, which will be coming in this year,” Jonathan says. Order book replay functionality allows firms to recreate past trading environments, helping compliance teams better analyse market events and trading patterns.
Additionally, eflow Global is focusing on the development of AI and machine learning capabilities to enhance their systems’ ability to detect cross-product manipulation and dynamically adjust alert parameters. “We’re also looking at the ability to use AI and machine learning to affect our clients’ parameterization of alerts and thresholds, which will be really useful.”
These innovations, combined with a focus on cross-product manipulation detection, will ensure eflow Global remains at the forefront of RegTech advancements, helping clients better manage their compliance obligations and maintain market integrity.
Balancing Innovation with Risk Management and Compliance
In an industry that constantly evolves, innovation is essential. However, balancing the need for innovation with the risk management and compliance demands of the market is a delicate task. Jonathan explains how eflow approaches this balance by focusing on the practical needs of their clients while pushing the boundaries of what is technologically possible.
“Innovation is generally a good thing in that we can spend as much money as we want innovating things. It’s then up to firms to say we want it or we don’t, so you learn by default in terms of how it’s picked up by firms,” Jonathan says. He emphasizes that the firm’s innovations are driven by two key factors: the compliance demands of their clients and the available resources within the company.
Jonathan mentions three major areas of focus for eflow’s innovation efforts: “I mentioned order book replays, which are something that compliance firms and trading firms will welcome in relation to high-frequency trading (HFT) and algorithmic trading. The ability to identify cross-product manipulation is something that risk management firms and banks, for example, would love to have but isn’t currently available in the market. And dynamic parameterization would help clients refine their risk.”
However, Jonathan acknowledges that not every innovation will be immediately adopted by the market. “The proof of the pudding is in the eating and how the market absorbs our ideas. If no one wants it, some might see this as a waste of a development cycle. But does that matter? You learn by both the development lifecycle and customer feedback.”
eflow Global carefully allocates resources to ensure that their innovations align with both market needs and available capacity. As Jonathan explains, “We don’t have an infinite pot of money, we have a limited number of high-quality developers, like every firm does, and we need to use that time wisely.”
Conclusion
As the RegTech industry continues to evolve, firms like eflow Global are at the forefront of innovation, responding to both regulatory demands and market needs. Jonathan Dixon’s insights offer a valuable perspective on the challenges and opportunities facing the industry. Global regulatory harmonisation, the relationship between regulators and RegTech providers, and the balance between innovation and compliance will shape the future of RegTech.
By staying focused on long-term goals, embracing emerging technologies, and maintaining close collaboration with regulators and clients, eflow Global aims to lead the way in ensuring market integrity in an increasingly complex and interconnected financial environment.
