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Technology in regulation

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Technology in regulation.

The Centre engages in high quality academic research in the area of technology and regulatory compliance, engages in outreach activities with both national regulators and global regulatory forums in the form of conferences, workshops and visits, and develops courses on this and related subjects for both degree and Executive Education programmes.

About our research

Powered by the advances in computing and telecommunication technologies, financial markets and institutions have essentially become complex adaptive systems of computer algorithms. Yet, the regulatory framework is still human-centric. Human regulators are writing rules with the idea that they would be interpreted and implemented by a human market operator. There is, indeed, a human operator, but it is no longer a trader or a regulatory compliance officer of the past. Instead, it is a software architect or a computer programmer who has to translate regulations into the lines of computer code. This creates a possibility of a significant amount of intended regulatory content to be “lost in translation.”

This issue creates a possibility for two types of implementation errors. Type I implementation error (false positive) means that the regulatory content that is not intended to be implemented, is implemented. Type II implementation error (false negative) means that the regulatory content that’s intended to be implemented, is not in fact implemented. Both errors are costly. Type I implementation errors mean scarce resources are wasted. Type II implementation errors mean that there is a possibility of regulatory action including fines. Together, these two implementation errors result in both increased costs of regulatory compliance and a loss of regulatory efficiency – what the regulators think is being implemented could be quite different from what is actually being implemented.

Questions and initial areas of research

  • Is there a framework for using digital technology in order to mitigate the loss of regulatory efficiency and at the same time reduce costs of regulatory compliance?
  • Can a regulation be described to a developer in a way that’s most familiar to her, e.g. as an integrated circuit, which allows certain things, prohibits others and is neutral over a range of values?

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Cambridge Centre for Finance, Technology & Regulation
Cambridge Judge Business School
University of Cambridge
Trumpington Street
Cambridge
CB2 1AG

+44 (0)1223 765484

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