From FinTech to RegTech and LawTech

Answer

It is doubtful that Newton Faulkner was predicting the change in the legal landscape when he wrote his two albums Hand built by robots and Rebuilt by humans. However, the 2007 and 2009 albums did touch on technological advances and their impact on human life and functionality. The idea of technology taking over human functions in society and business have been heavily explored – even by Pixar where Wally was left to clean up the human earth. As the film's theme tune dictates, "Put on your Sunday clothes, there’s lots of world out there" – a world of technology which is changing the commercial and legal landscape.

With GDPR coming into force a few weeks ago, everyone has heard about the importance of data security given that the advances in technology have led to increased cyber-attacks and hacking. Firms will need to be ready to respond to attacks of this nature instantly, at any time, to avoid litigation, prosecution and reputational damage. While these are real threats to the commercial world, this article will focus on technology created by humans to support the financial and legal sectors in the performance of services.

FinTech, RegTech and LawTech have been hot topics in the commercial arena for some time now, but will they result in robots building a new legal landscape and financial sector or will humans remain in control?

What are FinTech, RegTech and LawTech?

FinTech is the most publicised of the three brothers, experiencing a boom in innovation, investment and development. In short, ‘FinTech’ is the technology utilised in the financial services sector to increase efficiency and standards in order to compete with traditional financial methods for the delivery of financial services. From virtual currencies and blockchain to peer-to-peer lending and enhanced mobile banking, these changes have captured consumers as well as the attention of investors and the industry regulator.

The impact of FinTech on how business is conducted and services are delivered to the consumer is significant and has led to regulatory considerations. One example is that certain aspects of FinTech do not sit firmly within the current regulatory framework, leaving providers and regulators at a loss as to where to place it and how to treat it for regulatory purposes. The Financial Conduct Authority (FCA), in an attempt to encourage businesses willing to innovate while keeping a handle on the developments, established what is known as the regulatory "Sandbox".  Authorised and unauthorised firms, and technology businesses are able to apply to enter the Sandbox to gain access to guidance, informal steers, waivers and protection from enforcement action while they develop their products.

The FCA's aim in building the Sandbox was to reduce time-to-market for businesses wishing to innovate while providing support in identifying appropriate consumer protection safeguards to build into these new products – a controlled environment in which businesses have the ability to test new products and services. The findings appear to have been positive so far, with the regulator considering "going global" with its Sandbox, allowing overseas companies to apply for a space in the next cohort.

Having briefly explored Fintech, it may be evident that the lesser known LawTech and RegTech work on the same principle – they are the use of new technologies from AI to blockchain to deliver legal services more efficiently, as well as tackling  regulatory and compliance issues. These technologies are an area of convergence, bringing together financial regulation, legal advice and regulatory compliance with areas of software, hardware, networks, telecoms, data, marketing and consumer rights, in ways that create legal and regulatory challenges for all participants, and necessitate cross-sector working.

Hand Built by Robots or Rebuilt by Humans

The Sandbox is a good example which demonstrates cross-sector working – the financial sector working with the regulator to implement new technology to deliver services to consumers. The information gathered during the Sandbox periods will feed into additional regulation and legislation that may be necessitated by FinTech's existence.

While the use of technology in the financial sector appears to be an exciting prospect, opening doors to opportunities, LawTech has received mixed reviews. Solicitors are having to consider the prospect of many aspects of their day-to--day life being taken over by technology – Robolawyers are no longer a thing of the past; legal messaging apps and "virtual lawyers" are being tested. Basic legal answers to simple legal issues can be programmed with the use of decision trees and integrated into tools that consumers are able to access easily via their smartphones. It is said that the use of AI in these ways will allow technology to step into the shoes of a solicitor, providing services instantly, at any time of the day, from anywhere in the world, without the need for overheads such as offices to be factored into fees. How do we compete with that?

Robots taking our jobs – is it all doom and gloom?

It may seem that the modernisation of legal services and how they are provided to consumers are a huge threat to the legal landscape as we know it and the legal profession as a whole. However, it is worth considering the benefits of utilising AI and other forms of technology such as blockchain to enhance the services lawyers are able to provide to their clients.

The Serious Fraud Office (SFO) led the way in conducting a document review with a system backed up by AI to ascertain which documents would attract privilege. This significantly improved the document analysis capability and the speed at which the review was able to be conducted and finalised. On the one hand one could argue that the use of AI in this way put a few paralegals, solicitors and barristers out of work, as the task no longer required hours of physical document review. On the other hand, it could be argued that this use of resource allowed these professionally trained individuals to direct their attention to more pressing and complex matters. Similar applications of AI have been suggested for tasks such as legal research.

Certain applications of RegTech have allowed the anti-money laundering process to be conducted smoothly and more accurately, protecting parties to transactions as well as the firms conducting the work on the client's behalf.

The introduction of FinTech and the difficulty with placing it neatly into the current regulatory framework is likely to necessitate and create more complex litigation and financial regulatory work.

Additionally, online tools are making legal resources more accessible and allowing legal professionals to be more flexible. Agile working and travel are facilitated through a firm's adoption of modern technology – some lawyers are able to access any of their client's files on their smartphone. It is arguable that these changes will support further diversification of the legal profession.

Outlook

The introduction and further implementation of FinTech, LawTech and RegTech in the commercial and legal world will dramatically change the way in which services are delivered to consumers. There may be an argument that certain aspects of Lawtech will take over some of the tasks performed by legal professionals, but there is also an argument for embracing this technology to enable the profession to be more flexible and provide a better standard of service to their clients.

Not only will legal questions continue to be raised by the use of this technology (eg, how do we regulate FinTech and what legislation may best address this?), but practical matters such as how the service is delivered to the consumers will need to be addressed (eg, are processes capable of standardisation or performance by robots?).

Lawyers will need to deal with non-standard matters and complex legal advice, as well as developing their own skills and knowledge of FinTech, LawTech and RegTech in order to respond to the challenges the new technologies will bring. Increasingly, due to economic pressures and the advances in business, clients want to hire more than just a lawyer who will regurgitate – and let’s face it, translate – black letter law. Clients want thought leaders who can offer strategies to limit their risk – to do so one has to understand the landscape in which the issues arise and within which one's client moves.

While the landscape may be being built by robots, it may be a plus for litigators acting in the financial and white-collar crime sectors and an opportunity for the commercial and legal industries to up their game and provide improved services to their clients.

Christa Feltham is a second-year trainee solicitor in the commercial & regulatory disputes team (business department) in Michelmores’ Exeter office.