Out of the Shadows: Embracing
RegTech solutions in the NBFI sector

Policy Paper

6 July, 2021

The Shadow Banking sector in the EU has grown significantly over the past two decades, establishing itself as a concern for regulators following the global financial crisis. This policy paper evaluates the potential risks the sector presents, as well as the complexities for regulators in adequately addressing these risks. As a sector founded in the context of regulatory arbitrage and innovation, a variety of problems arise stemming from the many unknowns of the sector– from the consequences of interconnections between traditional banks and non-banking institutions, potential for systemic risk, and the dynamic and constantly developing state of financial regulations. Efforts at regulating the sector have so far had limited success. In aid of mitigating a number of these issues, this paper suggests the adoption of RegTech solutions. Working in conjunction with the European Commission’s digital transformation, RegTech should be at the forefront of efforts in the financial sector, with the prospect of significantly improving the work of supervisors, regulators, and industry.

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