VIDEO: Gene Ludwig of Promontory Talks Regtech, Blockchain


The regulatory technology industry, or regtech, is poised for high growth in 2018 as companies leverage emerging innovations to better comply with government regulations, Gene Ludwig, CEO and founder of Promontory Financial Group, told Bloomberg Law.

"Regtech is explosive," Ludwig, a former U.S. comptroller of the currency whose IBM-owned company specializes in helping financial institutions understand and comply with government regulations, told Bloomberg Law in a recent video. "We're going to see an asymptotic change in the way we do business."

Regtech grew out of the financial services sector's need to be more efficient in how it complied with regulations. Businesses use a variety of new technologies, like data analytics and pattern recognition, to meet their regulatory obligations.

Ludwig predicted that artificial intelligence technologies will continue to fuel the growth of regtech by changing how companies interact with customers, manage legal risk, and adhere to government rules

But blockchain technologies that allow for almost instantaneous, secure transactions to occur between parties—like banks, governments, and customers—will also profoundly change regtech, he said.

Blockchain "is potentially for business and, maybe for individuals, as big as the internet, it's just in its infancy," Ludwig said.

Blockchain is also the technology underlying cryptocurrencies like bitcoin and ether, which will also impact the financial services industry this year, Ludwig told Bloomberg Law. Companies that succeed in the growing virtual currency industry will be the ones that successfully navigate the regulatory environment, he said

"Cryptocurrency is a phenomenon that is obviously explosive, tremendously new and exciting," he said. "As this grows, there are a number of regulatory issues that are going to have to be dealt with.

Ludwig also said he sees a serious economic downturn on the horizon within the next five years. Unregulated entrants in the banking and trading sectors, including new financial technology, or fintech, businesses, inject more risk into the financial services industry and could spur the fall, he said.

"New products and new innovation—I think that part of the financial market is the most vulnerable to the downturn that is coming, and that could give us some serious negative surprises," Ludwig said.