As one Australian Securities and Investments Commission employee put it at a RegTech event in Sydney earlier this week: “If fintech start-ups are tech rich and the banks are data rich then I think it’s fair to say that ASIC is text rich. Our regulatory guidance is all text based.”
And there’s lots of it. ASIC’s guidance around, for example, employee incentive schemes – a relatively straightforward area of regulation – runs to more than 21,000 words over 59 pages.
Digesting, comprehending and acting on this text is a considerable burden on Australian industry and its financial institutions.
Deloitte Access Economics estimates that federal, state and local government rules and regulations cost $27 billion a year to administer, and $67 billion a year to comply with. According to KPMG, the big Australian banks spent between $350 million and $450 million on regulation and compliance each year.
In an effort to reduce this burden, the government is backing proof-of-concept projects by CSIRO’s Data61 group to transform government rules into public APIs.
Paragraph by paragraph, subsection by subsection, volumes of legal text are being converted into machine readable logic, resulting in what researchers have dubbed ‘regulation as a platform’ or RaaP.
“Think satnav for regulation,” says Data61’s Leif Hanlen. “So in the same way that satnav is going to tell you how to get through the city without bothering to stretch the roads out and make them all neat and straight, that's what we're trying to do for regulation. We're not trying to reform regulation but rather to make it easy to navigate on top of it.”
From page to platform
The process of turning regulation as text into APIs works something like this:
To begin with you need regulation that is prescriptive in nature; hard and fast rules that an organisation is either in compliance with or not.
“Things that are prescriptive can be converted into a form of logic that, if true then this is obligated, if false then that is permitted,” Hanlen explains.
“About 50 to 60 per cent of legislation you can imagine can be made prescriptive. And that element of most legislation is what you'd call the boring stuff and it’s fairly trivial from the point of your understanding, it is just hard because you have to read 50 pages.”
To that body of text Data61 applies its Defeasible Deontic Logic technology, the result of a decade of research at the organisation, which was formed out of a fusion of the CSIRO’s digital productivity group and NICTA in 2015.
Aided by natural language processing, the regulation text can be scanned in a matter of seconds and the logic suggested. When the regulation is not prescriptive – such as featuring ‘reasonable person’ rules or best practice guidelines – these parts are flagged.
Then, researchers join with regulators to check through the results, working at a rate of around 10 pages per person per hour.
“The entire process is the computer provides suggested logic where reasonable and then the regulator policy owner looks through that and says yes, no, maybe,” Hanlen says.
Finally the logic is coded into a single API which will eventually cover all government regulation and legislation.