Journal Article
Compliance-driven investments in technology - or “RegTech” - are growing rapidly. To understand the effects on the financial sector, the authors study firms’ responses to new internal control requirements.
Affected firms make significant investments in ERP and hardware. These expenditures then enable complementary investments that are leveraged for noncompliance purposes, leading to modest savings from avoided customer complaints and misconduct.
IT budgets rise and profits fall, especially at small firms, and acquisition activity and market concentration increase.
The authors' results illustrate how regulation can directly and indirectly affect technology adoption, which in turn affects noncompliance functions and market structure.
