Zach Kowaleski, University of Texas at Austin – Regulation Can Have Benefits Along with Burdens

Regulation can have benefits and burdens for businesses.

Zach Kowaleski, assistant professor of accounting at the University of Texas at Austin, delves into both.

Zach studies the effect of institutional settings on behavior using the audit and broker-dealer professions. Zach was formerly on faculty at the University of Notre Dame, an Economic Research Fellow at the Public Company Accounting Oversight Board and worked four years in PwC’s audit practice between earning his BBA, MAcc, and Ph.D. at the University of Wisconsin-Madison.

Regulation Can Have Benefits Along with Burdens

Businesses worry while federal agencies write regulations at an unprecedented pace. To comply with new regulations, business leaders are turning to new regulatory technology, or RegTech. RegTech spending is expected to soar to $208 billion by 2028. That’s seven times greater than just four years ago.

Though that’s a hefty price tag, our research tells us that RegTech has an upside: RegTech investments can yield important benefits for operations.

We uncovered these benefits by studying the broker-dealer industry, where brokers both advise and trade securities for customers. In the wake of Bernie Madoff’s notorious $50 billion fraud, the SEC tightened regulations, to make them take better care of customer assets.

Unexpectedly, our research found that these companies received 4% fewer customer complaints after they invested in RegTech.  But why should this be?

We found that they invested in data and reporting software, to respond to the regulations. But they didn’t stop there. They also invested in other software that was unrelated to the regulations but made productive use of the extra data: for example, Customer Relationship Management software.

These programs empower employees to advise customers more effectively. They also help the company to supervise misbehaving employees, which improves employee behavior.

One more thing. When COVID-19 forced most employees to work remotely, we found companies with superior technology were better positioned to avoid customer complaints. Yes, regulations can be costly, but RegTech can help make these costs easier to stomach.

Read More:
[ScienceDaily] – RegTech: Technology-driven compliance and its effects on profitability, operations, and market structure