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Introduction
Honduras, a lower-middle-income country, faces challenges related to efficiency, integrity, and universal financial services in its traditional financial system. The United States Agency for International Development (USAID) recognized the potential of Regulatory Technology (RegTech) to improve compliance and supervisory-related processes.
A readiness assessment was conducted to design a roadmap for implementing RegTech solutions to address identified pain points.
What is RegTech?
RegTech refers to the tailored use of technologies and development of new technology solutions to address compliance and supervisory-related challenges in a more accurate, effective, and efficient manner. Supervisory Technology (SupTech) is a specific set of RegTech solutions that support supervisory agencies in their assessment of compliance.
Examples of RegTech Solutions
Pain Points and Potential RegTech Solutions
The following table illustrates examples of RegTech solutions to general pain points:
| Pain Points | Potential RegTech Solution | Technologies Used | Examples |
|---|---|---|---|
| Fraud Detection | Fraud prevention and detection | AI, Machine learning | Monetary Authority of Singapore is developing machine learning algorithms. Mexico’s Comisión Nacional Bancaria y de Valores (CNBV) uses RegTech solutions to detect fraud. |
| Timely and Accurate Liquidity Reporting Requirements | Integration and interoperability between central bank supervisory systems and supervised entities. Application program interface (API) | The Bangko Sentral ng Pilipinas (Philippines Central Bank, or BSP) is using API for prudential reporting. Central Bank of Colombia is using a solution to identify early warning on liquidity and solvency of financial institutions. | |
| Credit Risk Detection & Analysis Support | Support for transaction and risk monitoring | Big data analytics | Mexico’s CNBV uses solution to perform credit analysis. |
Financial Inclusion
RegTech solutions can improve financial inclusion by decreasing compliance costs for market participants, supervision costs for regulators, and improving efficiency of current processes and evaluations.
Conclusion
The readiness assessment provides a roadmap for implementing RegTech solutions in Honduras, addressing identified pain points and promoting financial stability, integrity, and consumer protection. By applying a risk-based approach to supervision, RegTech can ultimately lead to more financial stability and less stringent requirements. Improved tools for detecting and combating money laundering would also decrease the risk of being cut off by global correspondent banks.
Recommendations
Based on the findings of this readiness assessment, it is recommended that Honduras:
- Establish a regulatory framework for RegTech solutions: To ensure a clear understanding of regulations and guidelines.
- Develop a roadmap for implementing RegTech solutions: To address identified pain points and promote financial stability.
- Provide training and capacity building: For regulators, supervisors, and market participants on RegTech solutions.
- Encourage collaboration between public and private sectors: To promote financial inclusion.
By following these recommendations, Honduras can leverage RegTech to improve its financial system’s efficiency, integrity, and stability, ultimately promoting financial inclusion and reducing poverty.