The use of regtech in central banking

The 2008 Global Financial Crisis and the rapid evolution of the fintech sector have revealed critical gaps and challenges in financial regulation and supervisory processes. These gaps became more pronounced as post-crisis regulations and digital transformation increased the complexity of compliance, rendering traditional reporting methods inadequate and driving up regulatory costs. In response, "regulation technology" (regtech) has emerged as a set of technology-driven solutions aimed at improving compliance, risk management, fraud prevention, and data protection. Traditional reporting inefficiencies not only hinder financial institutions but also impair the ability of central banks and financial authorities to design effective policies, ensure financial stability, and conduct robust economic analysis. In the literature, regtech is predominantly considered a subset of fintech, and comprehensive studies specific to central banking remain limited. This study primarily aims to examine the transformative potential impact of regtech on central banks and investigate how reporting challenges and risk management issues faced by central banks through traditional methods can be overcome through regtech. The study argues that regtech establishes a new paradigm in regulation beyond being considered a subset of fintech and aims to fill the gap in the literature specific to central banking. The study utilized a quantitative research method and survey technique, analyzing and comparing the regtech applications adopted by the central banks of the USA, the United Kingdom, Singapore, the EU, and Sweden. To assess the CBRT's current situation, a survey was conducted with a sample group comprising senior and middle-level executives. The survey, conducted with 41 participants, analyzed employees' perspectives and institutional awareness regarding regtech and suptech areas. The reliability analysis of the two-part, 28-question survey was performed using SPSS program, yielding a Cronbach's Alpha coefficient of 0.805. The research findings indicate that central banks utilize regtech tools particularly in regulatory compliance, risk management, and operational efficiency domains. The implementation of technologies such as big data analytics, artificial intelligence, machine learning, and blockchain enhances central banks' data analysis capabilities and improves decision-making processes. The survey study specific to the CBRT revealed that while regtech tools are not yet effectively utilized by senior bank executives, there is high-level institutional interest in these technologies, particularly within the scope of the digital Turkish lira project. Technological infrastructure deficiency, data standardization issues, and cybersecurity risks were identified as primary challenges. The results demonstrate that regtech can significantly enhance central banks' capacity to maintain stability and order in the financial system. The study's findings indicate that regtech will gain momentum with initiatives such as the CBRT's digital Turkish lira project and emphasize that the widespread adoption of regtech in central banking is critical for the financial system's efficiency and reliability. This study is among the first research efforts to systematically analyze the transformative potential of regtech in central banking. For the CBRT, prioritization of regtech implementation in digital currency projects and risk management processes, development of institutional capacity, and strengthening of technological infrastructure are recommended. Thus, it provides an original contribution to the literature and presents a framework for future studies regarding central banks' regtech adaptation processes and solutions to encountered challenges.