RegTech

Compliance-driven investments in technology—or “RegTech”—have grown rapidly in recent years. To understand these investments, we study how financial institutions respond to new internal control requirements. First, we show that affected firms make significant investments in enterprise resource planning, data management, and hardware. These investments then allow for complementary expenditures on customer relationship management tools that rely upon information quality. As a result, customer complaints and employee misconduct decline at affected firms. Additionally, market concentration increases. Our results illustrate how regulation can directly and indirectly affect technology adoption, which in turn affects noncompliance functions and market structure.