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Washington, DC
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Jo Ann Barefoot explores how to create fair and inclusive consumer financial services through innovative ideas for industry and regulators

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Regulatory Change

Mallory Kwiatkowski

I recently had dinner with a small group of thoughtful people from the worlds of finance and fintech. Our host posed the question suggested by Peter Thiel in his book Zero to One: What strongly-held opinion do you have that no one else agrees with?

When my turn came, I offered two. First, I said I think technology can solve all the problems people have with their financial lives, other than lack of money. Most people don’t see that yet (I believe they will, if we get the regulation right). However, some people do, including some at the dinner.

On my second point, though, I think I might have been alone. I said I believe regulators can change. I said they can change fast enough and well enough to do a good job addressing the technology transformation underway in finance.

That one produced skeptical murmurs and laughs and then lively debate. People immersed in technology just flat find this hard to believe.

However, I not only believe it. I know it.  

There are two reasons why I’m sure. The first is, regulators don’t have the option not to change. Technology is revolutionizing finance. It’s not waiting for our regulatory systems to be ready for it. It’s just coming. It’s bringing issues that are mold-breaking and novel, but the even bigger challenge is the speed. No one can keep up with these trends, let alone know how they will impact financial markets and customers. In the face of such uncertainty, the natural human tendency is to wait for clarity. However, traditional clarity won’t materialize, at least not in time. Slow regulatory systems will increasingly fail. Sometimes holding still is the riskiest choice.

Policymakers are smart. They will figure how to move faster, because they’ll have to.

The second reason I’m sure this will happen is because it already is happening. We already have visionary and even courageous leaders, globally and increasingly in the U.S., who understand the importance of this moment and are moving to optimize it -- to enable desirable change and to contain new risks. I’ve been a bank regulator, and I’ve worked with them my whole life. Today, almost every day, I talk with regulators who sound like none I’ve ever known before. And their ranks are growing. Again, they’re smart. They love their work. They will do it well, which means they will get better at rapid change.

This month’s solar eclipse was a cosmic rarity, and also a social one as it briefly united the country. Much of the unity was tech-enabled. My brother had traveled to the totality in Oregon (the totality -- I love how that word, with its resonant power, entered our vocabulary). Steve began live-texting the eclipse to our far-flung family, and then we all shared it with each other, all day. Since the beginning of time, a solar eclipse has been experienced by each human as something that happens in one time and in one place. This eclipse, suddenly, transcended that. We shared it, live, because we have cell phones and phone cameras and social media -- ubiquitous, hand-held, instant, multi-media connection with each other. There was no lag. We didn’t have to wait for photos in tonight’s TV or tomorrow’s newspaper; we didn’t have to check the mailbox next week to see if there’s a letter from our brother. We experienced it together, in real time, as a single event.

This is going to happen with regulation. Information and insight that now live inside separate systems and travel slowly, in constricted channels and in fragments -- these are going to connect. They’re going to move onto platforms. This will enable both regulation and compliance to learn fast, learn continuously and learn well. It will thus become ever more smart and agile.

Problems will abound, of course. Sometimes, yes, we will move too fast. It obviously won’t be perfect. But if we do it right, it will be far better than what we have now.

I’m sure of it.

What do you think? Share a comment!

New podcasts

Upcoming events

This month’s must-reads:

Be sure to follow me on twitter and facebook.  As always, check the website for more updates. Most importantly, keep innovating!

Jo Ann

New Generation

Mallory Kwiatkowski

This month my daughter and son-in-law had their first baby.

Holding a newborn makes you long for a better world. We can’t know what the future holds overall, but I do know one thing:  Christopher’s generation will do better than any before in one realm of life  -- finance.

When I started my fellowship at Harvard, a colleague introduced me to academic work on “wicked” problems, meaning problems so complex that they seemingly cannot be solved. Consumer financial health has always been one of these. Rich or poor, young or old, healthy or hurt, elite or outcast, everyone has a financial life. Everyone takes money in, pays it out, and hopes to save and maybe borrow. Throughout history, many people have struggled to do these simple tasks, unable to access and afford mainstream services, and/or harmed by the services they use or how they use them. For decades, even centuries, we’ve tried to solve this wicked problem mainly by regulating finance. For many people, we’ve largely failed.

Today, technology is solving it for us. For everyone...

Technology has begun to convert consumer financial ill-health from a huge wicked problem to a marginal one. It’s making it possible for everyone, from every station in life, to manage their money in ways that help them thrive. It’s bringing low-cost services to every corner of the earth through mobile phones; new data for inclusive but sound underwriting; new ways to prove identity; simple and transparent products; micro-payments; easy, automatic budgeting, saving, and financial management; personal (robot) financial advisors for all; reminders to do what we should; help with resisting temptation; armor against scams, and much more. All this is coming in fits and starts, with failures and problems and hard-won lessons along the way, but it is coming, this is certain. It’s being driven by technology trends much bigger than finance, like mobile technology, big data, artificial intelligence, blockchains, and voice interface.

Correction:  it’s coming for sure...if we regulate it right. Policymakers need to allow good innovation to emerge, and also block new risks coming with it.

That won’t be easy. The challenges are novel, and they’re coming very fast, and on multiple fronts. And regulatory change is always hard, tangled up with politics, traditional cultures, well-motivated carefulness, and in the United States, fragmented agency structures. Making regulation effective and efficient is a wicked problem, in itself.

This is what we need to work on. We need regulation innovation, that’s smart about fintech and that adopts regtech.

We need a new generation of financial policy.

Other updates

On June 30 I finished my senior fellowship with the Harvard Kennedy School Mossavar-Rahmani Center for Business and Government. I was there for two years, writing a book on financial innovation and regulation. I’m still working on it  (my subject matter is a moving target), but will publish a paper on my research and recommendations.

“Fellowship” is a perfect word for my Harvard experience. I’ve moved back to Washington, but cherish my connections with the other fellows, the students, faculty and staff, and the university community. It brought learning and inspiration, every day.


New podcasts

Upcoming Events

As always, check the website for more updates, and keep innovating -- for that new generation!

Jo Ann

Be sure to follow me on twitter and facebook.


Mallory Kwiatkowski

June has been regtech month.

People use the “regtech” term in two ways. There is regtech for regulators, and there is regtech that transforms industry compliance. If we develop it right, the two will gradually merge into something unimaginable today -- regulation that simultaneously improves public policy outcomes, and slashes costs.

On June 1, I hosted a regtech roundtable at the Harvard University Center for Business and Government in the Kennedy School for Government. We aimed for 30 people and ended up with 50 people coming from all over the world to grapple with the question: Can technology redesign regulation? The event cross-pollinated thinking between two groups: financial regulatory experts who are not deep in technology, and technology experts who don’t work with regulation. We posited that regulators know they have a problem -- the difficulty of making regulation effective and efficient -- and think it can’t really be solved. The tech group, meanwhile, has the solution, but doesn’t know about the problem, or thinks it isn’t interesting. As the two groups combined, exciting ideas began to form.

At one point, I asked for a show of hands of participants who know how to write computer code, and then participants who have written laws or regulations. The overlap was minuscule -- it may even have been zero. Perhaps, however, some regulations should be issued as code. Maybe some should be issued in the regulatory equivalent of an app store, requiring compliance systems to meet standards while permitting more agile compliance.

The theme continued all month. I moderated the first-ever regtech panel at theCFSI Emerge Forum in Austin, and at the ABA’s Regulatory Compliance Conference in Orlando. The latter was with Gene Ludwig and Alistair Rennie of Watson Financial, one of many regtech firms springing up to bring better data and artificial intelligence to compliance tasks like Anti-Money Laundering.

I ended the month hosting my own annual summer roundtable, where these themes dominated once again. How can regulators use data, machine learning, and blockchains to get to win/win outcomes with better, cheaper regulation? How can we create “explainable AI”? How can we assure that new approaches have “computational integrity,” and that they don’t enshrine and bury illegal bias? There is a lot of work ahead. I think we’ll do it though. As a former regulator, it’s clear to me, that the current system cannot manage the risks ahead. The changes are too massive, and moving too fast, to regulate the old way.

I also joined two international regtech groups that launched in June. Both the RegTech Council (RTC) and the International RegTech Association (IRTA) are based in Europe and are tackling the fast-emerging need for better collaboration, communication, and consistency on a global scale. Over in the U.S. we have the new RegTechLab. Venture capital is flowing into regtech startups, and regtech conferences are springing up daily both in the US and throughout the world. The developing world is prioritizing regtech to build financial inclusion through mobile phones. In short, it’s big.

The technology already exists to make regulation better. We just have to figure out how to do it, and then figure out how to get from here to there in our political and economic framework.

One more thing: At my summer roundtable, I asked if the U.S. can and should create a testing capability for regulatory change. Call it sandboxes, greenhouses, or labs -- do we need a way to test and study changes on a small scale before forcing them on the whole system, especially in novel areas involving data and technology. I think the vote was unanimous: We do.

Exciting Podcasts Out This Month:

Upcoming Events:

As always, check the website for more updates -- and keep innovating!

Jo Ann

Be sure to follow me on twitter and facebook.

Financial Health

Mallory Kwiatkowski

My high point for May has been becoming chair of the board of CFSI -- the Center for Financial Services Innovation.

CFSI’s founder and chief executive is Jennifer Tescher. She’s now my good friend, but I vividly remember the first time I saw her.  We were at a small roundtable in California, an event where I was a veteran and she was a first-timer. I initially assumed that CFSI was a consumer advocacy group, but as Jennifer began to talk, I realized it was a new kind of mission-driven non-profit. She said things I’d never heard before from an advocate -- or anyone at all -- in all my years of working with consumer inclusion and protection. She spoke about using technology to solve consumers’ financial problems. She defined those problems in terms that transcended lack of income or lack of banking services. She even described making venture investments in startups that were building new financial products.

Through my whole career, policymakers have worked from an implicit assumption that financial inclusion is a regulatory issue, needing solutions like the Community Reinvestment Act. Suddenly, someone had new ideas. And these ideas were built on entrepreneurial energy and technology. In a word, on innovation.

CFSI is unique in how it blends research, convening power, thought leadership, and fostering of cutting-edge innovation. It has a membership network. It runs the Finlab, a fintech accelerator funded by JPMorgan Chase that is already producing successful companies. It conducts research, including the landmark US Financial Diaries study, which has just become a book.  It spun off the impact venture fund Core Innovation Capital. It invented and runs FinX, which will come to any group and help participants experience, on the ground, how marginalized consumers navigate the financial system.

The Diaries and other research are reframing how we think about financial inclusion by identifying a crucial dimension of the problem, namely volatility. Millions of Americans are living within their means -- they spend less than they earn -- but can’t rely on mainstream financial services because their incomes and expenses are volatile. They struggle with cash-flow timing problems that require, today, use of high-cost products like payday loans, deposit overdrafts, and check-cashing. Millions spend hours each month driving around town to pay bills on the exact due dates, because cash gets credited without the lags that permeate our payments system. (See Lisa Servon’s book, The Unbanking of America, and also the important new paper by my Harvard colleague Todd Baker.)

Several years ago, these insights led CFSI to reframe its mission from focusing on financial inclusion and the “underbanked” to a strategy of building financial health. The good news is that today’s innovators are attacking every problem in this complex system. It’s becoming possible to equip everyone to lead a healthy financial life, regardless of their income or situation.

I now sit at the CFSI board table in the place once held by our founding chair (and former OTS Director) Ellen Seidman.  I’m awed by the vision of Jennifer, Ellen, and the other founding directors and staff who saw how innovation could transform people’s financial lives, more than a decade before we even had the word “fintech.”

I hope you’ll get involved with CFSI. Please visit the website for a wealth of material, resources, networking opportunities and ideas, and also come next month to the Emerge Financial Health Forum in Austin. I’ll be there, along with hundreds of innovators in fintech, banking, finance, nonprofits, academia, and government, exploring new solutions.

Here are my past podcasts with CFSI:  JenniferCore CEO Arjan Schutte, and the Finlab. I’ll do one soon with Rachel Schneider on the US Financial Diaries book.  

Also coming up shortly, is a podcast with the great Brett King, another fellow CFSI board member. As a matter of fact, I’ll share my very fun appearance this week on Brett’s Breaking Banks Radio show.

Updates and Upcoming Events:

As always, check the website for more updates -- and keep innovating!

Jo Ann

Be sure to follow me on twitter and facebook for live coverage of these exciting events!

Changing the World

Mallory Kwiatkowski

In the past three weeks I’ve participated in six events on fintech and regtech with international bank regulators – averaging twice a week. There were three in London during the Innovate Finance summitone in Washington connected with the World Bank spring meetings; one in San Francisco with a Basel task force; and another in New York.

In March there were two more -- the one in Jakarta that I described in last month’s post plus a briefing in New York for senior bank supervisors from the major economies.

That’s six meetings on three continents, with regulators from six continents, just in March and April -- and just the ones I went to. And I got invited to more.

Something big is happening.

It’s an awakening, by governments worldwide, to the new world they face as innovative technology transforms finance, and especially to the magnitude and speed of the change confronting them. Central banks and bank supervisors are moving to address two things.

First, they have to figure out how best to regulate fintech in order to see its promise fulfilled while blocking the downside risks embedded in it. That’s a daunting task -- walking a knife-edge to avoid choking off innovation that can bring enormous benefits to financial customers and  markets. Regulators are realizing that they must develop new skills, models and cultures, must work toward common principles without imposing static standards, and must learn to move more quickly despite uncertainty. They are recognizing that stepping forward is risky, but so is standing still.

Second, regulators are moving to adopt regtech. The same new technologies that are driving fintech – big data, artificial intelligence, distributed ledger technology (DLT) and others – can now be harnessed to transform regulation itself. Experiments are underway from London to Singapore to Australia.

One example is RegTech for Regulators Accelerator, or R2A, using funding from the Gates Foundation and Omidyar Network, among others, to help several countries develop concrete solutions for specific regulatory priorities. Another is the UK’s Financial Conduct Authority “tech sprints” (hackathons) to fashion new regulatory approaches.

Some of this innovation is about the drive to reach full financial inclusion through cell phones and digital technology (see my podcast ‘Financial Inclusion is Coming Fast’ with AFI’s Alfred Hannig). Some of it is just about bringing regulation into the digital age.

Technology is creating a chance for optimization -- a rarity for government -- that can improve public policy outcomes and cut regulatory costs, at the same time.

The London Innovate Finance and FCA International FINTECH Conference events were especially thought-provoking. Visionary regulators have begun a true global dialogue.

 And it was especially fun recording THIS VIDEO in London with Hub Culture.

Speaking of vision, I enjoyed moderating a session month at the FinXTech Summit in New York, especially because, finally, someone is bringing together fintechs and forward-looking community banks in the same room. I think the future of community banks depends on partnering with innovators.  The summit was sponsored by Bank Director magazine, which also quoted me in an interview this month.

I also was pleased to contribute to the GAO’s important new report on regulatory oversight of financial technology, which came out this month.

Last but certainly not least, I had great fun recording this podcast with Zach Miller of Tearsheet about regulation innovation and my own adventures in podcasting. It’s always delightful to be the guest instead of host!

As always, check the website for more updates.  I hope to see you June 15th, in Austin, TX, for the Center for Financial Services Innovation gathering (CFSI Emerge) and at the ABA’s Regulatory Compliance Conference in Orlando.

Keep innovating!

Jo Ann

Speeding Up

Mallory Kwiatkowski

March has been a month of exploring places where change is happening even faster than we realize.

First, I forayed into the land of emerging technology at SouthBySouthwest, or SXSW. This is the huge annual conference that runs three overlapping festivals -- on music, film and tech -- in downtown Austin. SX (“South By,” as it’s affectionately called) has no fintech track, which can make it less appealing to financial professionals than, say, Money 2020 or LendIt (where I also spoke this month on the OCC fintech charter and a panel on China). Nevertheless, I always urge people to go. For one thing, it has great financial content, including panels and product unveilings by major financial companies.

More importantly, SX expands the horizons of finance people, because we tend to forget that fintech is more 'tech' than 'fin'. Its drivers are the huge technology trends reshaping everything about how we live, with finance being just one small facet. It’s easy to underestimate the speed and size of these changes because most of them are developing over the horizon, out of sight, in the tech world itself. SX is the efficient -- and fun -- way to go see them up close, from cars and robots to health and food.

This year’s big trends included artificial intelligence and machine learning, virtual reality, voice technology, and bots, including chatbots, all of which are coming soon to a financial product near you. So are the related challenges around cybersecurity, cybercrime, privacy, data ethics, and many more thorny issues that were thoughtfully explored by SX’s speakers. I posted live to my facebook.

Plus, it was extremely cool to walk around on Mars, via a VR headset, at the NASA booth. And don’t even get me started on seeing the creators and stars of Game of Thrones….

My second exploration in an accelerating world was geographic -- a week in Jakarta at the Fintech Stage Inclusion Forum, sponsored by the Gates Foundation and Omidyar Network for central banks, financial regulators, innovators and banks on how to regulate fintech to build financial inclusion. Regulators came from at least six continents, sharing experience and ideas on how to regulate fintech and how to use regtech, themselves, to redesign the regulatory process itself.

Every time I speak at a global conference like this, my takeaway is that U.S. policy lags far behind the world’s leaders on fintech and regtech. There are good reasons for this -- in some ways our problems are less urgent than those of the developing world, plus our fragmented regulatory structure makes it hard for American policymakers to galvanize change. We need to move forward, though. If we don’t, we could lose our edge in innovation.  

Meanwhile, fresh on the podcast this month is a millennial building for millennials - Ollie Purdue of LOOT.

Plenty more excitement to come! As always, check the wesbite for more updates:

Technology is transforming finance, and regulation too. But most of us need to move faster to make it work!

Jo Ann

Be sure to follow me on twitter and facebook.


Mallory Kwiatkowski

As someone who spends my time on high-level ideas and trends in financial innovation and regulatory strategy, I took an important step last year:  I cofounded a startup.  It’s called Hummingbird Regtech, Inc., and it aims to transform compliance through cutting edge technology, starting with anti-money laundering.

For me this is learning by doing, and the practical, concrete process of designing a next-generation compliance tool has already brought me insights I never would have found by doing policy work at 30,000 feet. The breakthrough moments have come from brainstorming with my colleagues Matt Van Buskirk, who is a regulatory expert, and Farshad Nayeri, who’s an engineer. Matt likes to say that when you tell fintech engineers about regulatory requirements, their first reaction is usually disbelief, as in, “you have to be kidding -- why would we need to do that?” The next is that they set out to design an efficient, effective way to get it done. If you tackle that task with no preconceptions and no legacy tools, and instead just apply new technology to a blank slate, you can create tools that are faster, cheaper and more effective in reaching public policy goals, all at once.

The Hummingbird work is giving us more than ideas for compliance solutions. I’ve predicted that 2017 will be the year of “regtech,” a term that has two meanings. One is using updated technology to comply with regulations. The other refers to use of new technology by regulators, themselves, to enhance their own work. Regulators around the world are innovating, using big data, machine learning, API data feeds, and other new strategies to rethink everything from bank regulatory reporting to detecting patterns of insider trading.

As I spend time with tech people on these problems, we are finding ourselves evolving a whole new vision for how regulations could be designed in the digital age. The core shift should be from creating regulations as linear processes -- rules, policy, procedure, and the like -- to framing them as technology “systems” that can be flexible, easily updated, and constantly improving. I’m convening a cross-section of regulatory experts, engineers and designers to flesh out the concept and will expand and share this further in the coming months.

This is an exciting time, stay tuned as I will also be sharing more on Hummingbird as it launches live pilots this month! 

In addition to discussing fintech and regtech with global senior supervisors at the New York Federal Reserve Bank in early March, I am also very much looking forward to what's up next: 

  • April 10th, London - I’ll speak on regtech at Innovate Finance, and later that week I’ll  join in the regulatory forum of the Financial Conduct Authority

  • April 26th, New York - FINXTECH Annual Summit - Panel on Key Regulatory Perspectives

  • June 15th, Austin, TX - Center for Financial Services Innovation (CFSI Emerge), FInancial Health Summit.

Technology is transforming finance. It can transform regulation too! Exciting times ahead!

RegTech and the Trump Disruption

Mallory Kwiatkowski

2017 will be the year of “regtech.”

That’s partly because this new technology is growing exponentially, and also because it can find fertile soil in the turmoil of Donald Trump’s Washington, where everything is suddenly open to change.

Most of the U.S. financial world has not even heard the term yet (again, that will change this year). It has two meanings. There is regtech for regulators -- applying new technology to the regulatory process itself. There is also regtech for industry, as innovators create new-generation compliance tools that simultaneously slash costs and strengthen public policy outcomes.

Worldwide, these trends are moving fast. Countries from the UK to Singapore have established regtech learning labs, and the developing world is a hotbed of experimentation as regulators rush to keep pace with the financial transformation driven by smartphones. Meanwhile, capital is pouring into startups inventing new tools for financial companies. Innovators are realizing that the same technologies behind fintech -- big data, AI, blockchains, and more -- will also revolutionize regulation.

The trend is slower in the United States, partly because our fragmented agency structure impedes change. However, regtech is the single best path to regulatory streamlining, a top priority of the new administration.

I myself have cofounded a regtech firm to automate AML compliance, which I’ll tell you about soon!

Meanwhile, please enjoy the latest podcasts featuring Theo Cosmora of the OneDollarSmartphone); LendUp CEO Sasha Orloff, and the formidable former SBA Administrator and Harvard Business School Fellow, Karen Mills, on fintech for small business.

 Karen Mills, Harvard Business School senior fellow and former SBA Administrator, says, “The industry needs regulatory policy.”

And here’s what’s coming up :

  • March 6th, New York - LendIt USA hosts its huge annual conference on lending fintech. (I’ll join a lively panel there on the OCC’s fintech charter concept.)

  • April 10, London - I’ll speak on regtech at Innovate Finance, and later that week I’ll  join in the regulatory forum of the Financial Conduct Authority

  • April 26th, New York - FINXTECH Annual Summit - Panel on Key Regulatory Perspectives

  • June 15h, Austin, TX - Center for Financial Services Innovation (CFSI Emerge), FInancial Health Summit.