ABSTRACT
Regtech is not a replacement for regulators’ judgment. This issue concerns the long-standing debate between policy rules and discretion in financial regulation and monetary policy. It’s important to acknowledge that Regtech-based policy rules are conducive to avoiding “Regulatory Capture,” improve the credibility of regulatory decisions, and thus restrain certain imprudent risk-taking behaviour ex ante. But they are far from being a substitute for regulators’ judgement. First, the real world is complicated and financial regulators have to think of and weigh all aspects prior to a decision. This complicated decision-making process can only be approximately simulated, not entirely replaced by Regtech. Second, the reliability of policy rules. In the practice of financial regulation and monetary policy, policy rules are not widely adopted, so that most decisions are made without reference to them, let alone fully based on them. Third, the credibility of policy rules. Regtech-based policy rules themselves won’t be held accountable as individuals and institutions. Fourth, some artificial intelligence algorithms are like a “black box.” Policy rules, if they’re generated by such algorithms, will lead to complex communication problems between financial regulators and institutions.
