Regulating FinTech: Fostering innovation while preventing harm

Guess where the following statement appears on the web:

“We promote competition through disruptive innovation— innovation that offers new services to customers and challenges existing business models.”

A fintech company? A bank vendor? A consulting firm? A think tank? A trade association?

None of the above. Actually, it’s a regulator. Can you guess which regulator?

Hints: It's not the Comptroller’s Office. Not the Federal Reserve Board. Not FDIC. Not even the Consumer Financial Protection Bureau.

It's the Financial Conduct Authority, in the UK.

“We promote … disruptive innovation … that challenges existing business models.”

Disruptive innovation—by a regulator?

Will fintech change regulatory philosophy?

The UK has a national strategy aimed at being the fintech capital of the world. To that end, it is actively working to attract and nurture innovative financial companies, using a range of tools that include regulatory policy.

This proactive stance contrasts sharply with traditional regulatory approaches worldwide, including those used in the U.S. (thus far). Normally, policymakers focus on addressing emerging risks as markets change. While many regulators may try to minimize interference with industry practices, it’s rare that regulatory strategy seeks, affirmatively, to embrace the upside potential of innovation.

Increasingly, however, innovative technology is forcing this kind of balanced thinking into the regulatory arena. In the UK, this is partly conceived as a national strategy for economic competition, but is also explicitly designed to capture the massive potential benefits that innovation is creating for consumers.

Regulators are striving to balance on the knife-edge of preventing new risks—which will undoubtedly develop—while still allowing pro-consumer fintech to flourish.

Upside of philosophical shift

The potential consumer benefits are enormous. Fintech innovation is driving the whole sector toward:

• Sharply reduced costs, especially through mobile delivery channels.

• High transparency to consumers.

• More inclusiveness through, again, lower-cost channels and also use of alternative data that can fine-tune risk evaluation of people with limited or complex credit histories.

• Consumer empowerment through easy personal financial management tools and simplified savings and investment.

• Faster payments that reduce uncertainty about when payments will clear, thereby helping consumers who have timing problems covering their bills.

Regulators throughout the world are starting to realize that their own actions could inadvertently undermine such upside potential, as they pursue legitimate efforts to address downside risk.

Finding the right mix of policies is not a simple task.

UK’s regulatory innovation

The FCA has created a “Project Innovate” initiative and an “Innovation Hub.” Though a regulatory body, it is pursuing strategies that range from directly nurturing promising start-ups to adopting policies that foster innovation. [Read Jo Ann Barefoot’s earlier “Lessons from London? ‘Fair banking’—with English on it”]  

For example, the FCA has sought public comment on two questions. One, is what regulations are impeding innovation? The other is whether there is a need for new regulations to foster innovation. These reflect fundamental strategic thinking about the role of financial regulation.

Another example is the FCA's exploration of whether to create a formal “regulatory sandbox” to enable innovators to test new ideas that might raise regulatory concerns or that do not fit squarely into the structure of current rules.

Click the image to view a video from FCA. (Scroll to bottom of page you land on.)

I had the chance to participate last year in FCA’s roundtable discussion of the sandbox proposal and was struck by the far-ranging new thinking underway.

For example, the agency invited input on whether to create a “virtual sandbox” in which consumer data could be collected and centralized so that innovators could test ideas without having to use real customers as “guinea pigs.”

Another idea is to permit industry associations to play an “umbrella” role, streamlining access to the sandbox approval process for small innovators.

Numerous other challenges are under discussion, from how to define and measure consumer benefit, to how to protect providers’ intellectual property and competitive positioning, to how to make a sandbox permission process simple enough that it would help, rather than hinder, fast-moving innovation.

UK regulators describe their efforts as experimental. (I notice that both public and private sector leaders often use the word “journey.”) No one I know, in government, banks, or startups, thinks they have figured out all the answers.

As a former bank regulator myself, what I find fascinating is that they are trying to move toward a different way of operating as they navigate the extreme uncertainties and rapid change ahead. There is an effort to be more flexible, more collaborative, and more nimble—faster.

While no one seems actually comfortable with this, there is palpable excitement about its potential.

Bear in mind, too, that innovators in the UK have the opportunity to “passport” their operations throughout the European Union. That, combined with this innovative regulatory strategy, makes the UK an excellent place for innovative companies to do business.

Principles versus rules

The UK contrasts with the US in another aspect of regulatory policy:  It relies much more heavily on “principles-based,” rather than rules-based, regulation for consumer financial protection.

The UK does have extensive technical rules governing consumer financial products and practices, but the regulators moved, years ago, toward emphasizing broad standards for “treating customers fairly.”

UK regulators also require senior executives to attest that their institutions have done so.

Here again, one hears people use the word “journey” to describe the difficulties of regulating “conduct,” as opposed to straightforward (if complex) compliance with procedural rules. Conduct and fairness are subjective concepts, difficult to apply.

Personal accountability standards can have unintended consequences, sometimes driving providers out of market sectors where regulatory risks are high and/or hard to predict.

Still, these regulatory strategies emerged in the UK before the US agencies began to emphasize similar approaches regarding unfair, deceptive and abusive practices (UDAAP). As a result, the UK has arguably moved further in clarifying broad principles and building consensus about what their regulators  mean.

The regulators have even taken steps toward trying to measure consumer outcomes, rather than compliance inputs, as the primary way to judge banks’ performance toward consumer protection goals.

Can US adopt this model?

None of this means that the UK is a fully apt model for the US.

As always with regulators and the regulated, there are many contentious issues between the financial industry and the FCA. Also, the UK’s challenges are simpler than ours in many ways. The country has a much more concentrated banking system, unlike the U.S. with our thousands of institutions.

The UK also has a vastly simpler regulatory structure, with two primary agencies—the FCA addressing “conduct” issues (and containing the semi-independent Payments Systems Regulator) and the Prudential Regulation Authority in the Bank of England overseeing prudential risk.

This contrasts sharply with our U.S. structure, in which we have five federal agencies directly overseeing financial institutions in addition to performing other critical missions, plus 50 states also chartering and regulating banks and also licensing and overseeing thousands of nonbank financial firms, especially lenders and money transmitters.

Nevertheless, the US can learn from observing the UK’s “journey.”

This side of the pond

Here in America, the regulators are moving in directions that parallel the UK’s efforts.

On principles-based regulation, they have already vigorously shifted to a proactive stance.

Coming out of the financial crisis, CFPB and also the prudential agencies have all emphasized UDAAP and fair lending as critical priorities. While technical rules continue to proliferate, the highest consumer regulatory risks for US banks today concentrate overwhelmingly in areas where product terms and practices are viewed by regulators as deceptive, unfair, or discriminatory.

Furthermore, this trend will only intensify as the sheer speed of technology change forces regulators to rely more on principles than rules, simply because detailed rules will increasingly lag behind market and product transformation.

On the innovation front, too, U.S. regulators are also starting to shift gears.

• Comptroller of the Currency Thomas Curry appointed a task force last year on Responsible Innovation, addressing both consumer protection and prudential regulation. In announcing the initiative, Curry noted that regulators have a cultural “tendency to say no,” and that the OCC needs to build a deep understanding of technology change, along with an ability to be “nimble.” The agency may issue a report this spring.

• Similarly, the Federal Reserve Bank of San Francisco held a first-ever conference last year on innovation and regulation, with participants drawn from industry, Silicon Valley, consumer advocates, and think tanks.

• The Treasury Department, too, held a conference on financial inclusion with a strong innovation focus late last year.

• CFPB has continued to evolve its Project Catalyst program, which seeks to identify pro-consumer fintech. Recently CFPB issued in final form its policy to facilitate consumer-friendly innovation.   

• At the state level, the Conference of State Bank Supervisors has been exploring the same kinds of challenges.

• Meanwhile the Federal Trade Commission is doing extensive work on privacy and fair usage of “big data,” including the Internet of Things (IoT).

Questions all should be asking

There is no shortage of meaty and critical topics:

1. How should fintech startups be able to access and partner with the banking system, under what sets of rules and standards?

2. How should we address rising concerns about data security and privacy?

3. How should we address the opportunities and risks involved with use of alternative and “big” data and data analytics in risk evaluation and fair lending?

4. What are the implications of digital currencies, the blockchain, and real-time payments?

5. Do we need regulatory standards regarding data aggregation practices? Should consumers’ banking data be portable, as in the UK, and who should actually “own” it? 

6. How can our bank-centric regulatory system cope with burgeoning innovation by nonbanks, from tiny startups with a cool new phone app, to some future Uber of finance, to, say, mold-breaking services from “Big Tech” firms like Facebook, Amazon, Apple, and Google—all of which have consumer financial services in some form, already?

The technology forces disrupting finance will also disrupt our regulatory framework, because this industry is subject to such pervasive rules and supervision.

All players are living through an epic shift. The story’s outcome will depend on how well regulators, industry, innovators, and consumer advocates work together to embrace and shape innovation.

This article also appeared on BankingExchange.com. You can find it here.

Launching My Video Series

Eighteen months ago, someone made a suggestion to me. Why not take the consulting advice I give to my advisory clients and package it in a form that's affordable and widely accessible - as videos? Instead of reaching the few clients that can pay to fly me around and meet in person, why not use technology to share my thinking with everyone who's interested?

I loved the idea. It turned out to take a lot of work, but I'm excited to say that I'm finally, today, launching the series.

I'm calling it Regulation Innovation.

Is that an odd name?

Here's a question:  Which of these is not like the others?

Regulation, legislation, litigation, innovation....

Obviously innovation doesn't belong on that list.

Except...it does.
 

These two drivers - regulation and technology innovation -- are the two transformative forces that are disrupting consumer finance.  They are the top challenges facing virtually every company, both in cost and risk.

The industry handles them as if they are unconnected - even opposite, incompatible, like oil and water. In reality, they are tightly linked:

They have the same targets. Regulators and disruptive innovators are attacking the same consumer problems -- especially lack of product clarity and high product costs.

Both therefore threaten the same profit centers -- it's a pincer assault.
 

They mostly have the same causes, especially outdated technologies, cultures and structures.
 

This means they have overlapping solutions. Fixing one can efficiently fix the other.
 

They are disrupting each other. Finance is so highly regulated that disrupting the industry disrupts the regulatory process too, and vice versa.

They are creating a new state of permanent uncertainty, driving change that's too fast, fluid and unforgiving to manage by traditional means.

They will break and remake companies and industries

Leaders in the financial world need to understand these two forces, and understand how to thrive on - not struggle through - disruption.

Regulation Innovation is my video guide for these leaders.

• It's for both regulatory and business people at all levels, and for traditional companies and innovators of all sizes.
• It's practical -- short videos, maximum insight, concrete advice.

 It's a training tool

The initial videos cover:

• Welcome to the journey: Quick overview of the series
• The 5 tech trends: The key technology trends disrupting consumer finance and regulation, and why financial people are underestimating them
• Meet the innovators: Understanding the disruptors. Who are they, how do they think, what are they trying to do, how do they relate to the traditional industry?
• Meet the new regulators:  Understanding the daunting shifts facing regulators and policy-makers, and how they plan to meet them
• The 6 challenges:  the top challenges facing every financial provider
• The 7 strategies: Strategic approaches for each of the six, and overall

Click here to see the introductory video.

And also watch our bonus video that answers the burning question, "Why does Jo Ann Barefoot have an Xbox -- since she's never played a videogame in her entire life -- and what the heck does it have to do with regulation and innovation"

Like any innovator, we're launching with an MVP (minimum viable product) which will evolve based on feedback. Please sign up, share the site with your colleagues and friends, and I'll look forward to everyone joining me on the journey!

One Way Street

I made fifteen speeches last fall on how technology is disrupting consumer finance and the huge regulatory challenges created by this transformation. My travels included moderating a panel at Money 20/20, the largest financial conference in the United States and maybe globally.  Over 10,000 people gathered in Las Vegas to explore the frontiers of fintech.

Nearly every session I saw there mentioned regulatory challenges. The same was true at the Milken Institute London Summit a few weeks earlier, which tackled technology issues ranging from finance to health, and at the Emerge conference last summer in Austin, and every tech-focused venue I attended.

It got me thinking: Why do innovation conferences talk constantly about regulation, while regulatory conferences barely mention innovation?

There are exceptions of course, but the contrast is still striking. Money 20/20 (which has a full regulatory track) drew a record audience. I’ve never seen 10,000 people assembled in one flat-floored room before (as opposed to stadium seating). You could hardly see the back of the room. Everyone was working on fintech: payments, mobile, digital currency and block chain, online lending, mortgage lending models, savings and investment tools, alternative data, cybersecurity, privacy, financial inclusion and access, global consumer empowerment, the millennial market, and on and on. Startups pitched ideas. Huge companies unveiled initiatives. The exhibit hall’s glitz rivaled the Vegas strip. Three thousand people saw a show. Hallways were jammed. Parties were everywhere. The energy was palpable.

Regulatory conferences have been setting records too – thousands of people are attending them.  Appropriately, they talk about regulations. Compliance experts, lawyers, regulators, and consultants explain what’s changing, how to interpret it, how to comply, what’s ahead. They all offer valuable insight, but they rarely address fintech, much less hail from that world. Most have not yet plugged into the innovation energy surge.

They need to, because innovation is revolutionizing financial services generally, and compliance specifically. Here’s why.

Disruption: Financial services is the first industry to face technology-driven disruption while also being pervasively regulated. This means that the disruption of the industry will disrupt the regulatory system too.

Speed: Financial people underestimate the speed and size of the coming transformation because the critical changes are happening outside their field of vision -- in technology, not finance.

For instance, people in finance think of “mobile” as being about mobile payments, but payments are actually just a tiny sliver of how mobile technology is remaking our lives, including our money lives. Financial people view Bitcoin and the blockchain as a payment issue too, while this technology will actually restructure huge swaths of the economy, business models, and even internal operations. Financial people address privacy by complying with Regulation P’s requirements for handling their customers’ information, while privacy is meanwhile being deeply rethought as big data and artificial intelligence revolutionize finance and everything else. Financial people think of consumer credit regulatory issues in terms of rules like the Equal Credit Opportunity, Fair Housing Act, or Fair Credit Reporting Act, while innovators are using alternative data and new data analytics to invent new models for underwriting and pricing, opening huge frontiers of both business and regulatory change. Finance people see “robo-investing” as an exotic new issue, missing how “machine learning” and artificial intelligence will revolutionize every aspect of how people invest, save, spend, borrow, and manage their money.

And that list doesn’t even include innovations that have barely reached the financial industry’s radar at all.  One is breakthroughs in natural voice technology that, combined with big data and machine learning, will completely change financial “education” and how consumers are coached to make money choices. Another is what will happen as people easily and automatically receive ratings of financial companies and products in their phones. Another is the movement into finance by “Big Tech.” Google, Facebook, Apple, Amazon and others already offer consumer financial services and are likely to expand them. These companies are deeply embedded in the daily activities of hundreds of millions of people. They could provide more financial products and/or become an intermediating layer – a filter or advisor -- standing between their customers and traditional providers, changing the very structure of the market.

Surprise: A third reason the financial industry underestimates these changes is that the huge tech trends driving it – big data, artificial intelligence, mobile, the block chain and voice technology – are converging. As they merge, everything will escalate and accelerate.

Lagging regulatory guidance: Fourth, innovation-related issues will bring high spikes in regulatory risk because their novelty and rapid evolution will outpace policy-making. This will force the industry into a regulatory wilderness with few guideposts and unfamiliar dangers lurking everywhere, as regulators decide after the fact that new activities are causing consumer harm.

Aging regulatory tools: One more blind spot is that, despite conventional wisdom, some innovators actually have compliance advantages. This is partly because their products tend to be simple and transparent, and partly because some startups use clean, new high-tech compliance tools that are both effective and efficient. The widespread assumption that startups will be hobbled by regulatory barriers is partly true but flawed. They may even raise the bar for everyone.

The traditional industry already faces dilemmas sparked by these shifts. Compliance and risk staffs find themselves trying to protect their companies against regulatory risks that cannot be clearly assessed, amidst pressure from business units pursuing innovation. The compliance profession has evolved around expertise in implementing detailed technical rules, not navigating regulatory ambiguity, especially on the unfamiliar terrain of high-tech new products, channels and partnerships.  

Legal and compliance staffs are already confronting questions like these:

• Can our bank partner with an innovator, or buy one, or provide it with banking services?
• How can we assure such third parties satisfy regulators’ rules on third-party risk including on cybersecurity, privacy, AML, and reputation risk?
• Can/should we, or our third-party partner or vendor, use alternative data and data analytics to evaluate and price consumer loans, without risk fair lending violations, especially on disparate impact? If we don’t, could we eventually face criticism for not using these inclusive alternatives?
• Should we allow/prevent our customers from letting personal financial management (PFM) and other providers, including small startups, access and help manage their accounts?
• Can we implement a mobile banking or payment service and get disclosures right?
• Do we have the holistic data needed to know whether consumer outcomes raise UDAAP risks?    
• Should we explore helping our customers access robo-investing options and if so, what are the regulatory challenges?
• How much should we communicate with customers by text, on what subjects?
• Can we close or repurpose branches in lower-income neighborhoods, since most of our banking has shifted to being online? And can/should we design special mobile services for lower-income customers?
• Can we offer technology-based services in languages other than English, without triggering discrimination risks if we cannot automate and deliver every phase of the product life-cycle in the alternative language?
• Can we strengthen our AML and security protocols for non-loan products by requiring higher-risk customers to send us a picture of their photo ID and a selfie, without risking fair lending violations?
• Can we make our services appeal more to millennials without violating rules that add complexity, delay, and low utility compared to innovative competitors?
• How would payments system innovations, including real-time processing, impact our business and regulatory models for services like overdrafts or money transmission?
• How should we view the move by some banks to create open platforms, so innovators can write apps on their systems?

Regulation and technology are the top challenges facing traditional financial companies. The two seem different, even unmixable. In reality, they increasingly are two sides of the same coin.

Partnering is especially crucial. One Money 20/20 speaker said startups used to believe they would overthrow the banks, but now just want to partner with them. One person said to me, “Everyone has to pair off -- choose a partner and go to the dance.”

What does it take to do that well, for the traditional company and the innovator? That seems like great topic for regulatory conferences in 2016.

Or, how about inviting tech innovators to talk about the big changes coming and what they will mean for finance?

And what if both groups – innovators and regulatory experts – started attending each other’s conferences, and built a real, bustling two-way street?

A two-part version of this post also appeared in a guest blog at Banking Exchange magazine.

Part 1

Part 2

Books I Packed for Boston

People sometimes ask me to recommend books on innovation and regulation.

I recently moved to Boston for my Harvard fellowship, which will be devoted to writing my own book on regulation and innovation.  I thought I'd share a bit of the bookshelf I boxed up for the trip.

It's an eclectic mix with authors ranging from a Nobel Peace Prize winner to an anarchist.

I'd already packed others, including the indispensable book on consumer financial protection, Reference Guide to Regulatory Compliance, by my friend and former colleague Lyn Farrell.

The old book in the box - standing vertically with the spine mostly obscured -- is Ralph Nader's 1965 game-changer, Unsafe at Any Speed.  That was a half-century ago, when the consumer protection laws were young, and so was I, and so was Ralph Nader.  Time for an update?

Readers:  What do you suggest I read?

A Wonky Week

In the last three days, I brought three new technologies into my life.  I got Windows 10 (and therefore Cortana).  I got Google Photo. And I got an Apple Watch.

The speed with which they are changing me is breathtaking.

Both Siri and Cortana are tending to my every need (and by the way, they are funny).

The watch is gently tapping my wrist with incredibly helpful reminders.

And my photos are creating stories about my life, and even animations (my watch lets me know they are there.)

I've only begun to learn to use all this, but four things strike me about what they mean for financial services.

First, they all take the initiative to offer me help. When fully integrated with financial products, this will close the access gap for the millions of people who don't know where to start or whom to ask.  Help will be offered. Guidance will start where the person is, and go from there.

Second, voice technology will be the financial democratizer. When you can get cheap guidance by having a conversation, the doors open wide for millions of consumers.

Third, they are all using artificial intelligence - neural networks - to think and learn.  They need very little instruction and set up. They are figuring out what I want and need and like, and just getting it for me.

Fourth, they all showed up at the same time. Any one of them alone is transformative.  To have them all arrive together, allinstantly and automatically weaving their activities together for me - did I mention the word "breathtaking"?

Note that they are from three different companies - Microsoft, Google, and Apple. But they are all busily integrating with each other as they orbit around me and my needs. They are consumer-centric, not product-centric.

They reinforce the critical point that new technologies are converging on consumer finance.  Each is huge, alone. When they combine, everything changes. And remember, these are early-stage innovations. They're improving fast.

They are all trying to astonish and delight me, and are succeeding beyond what I could have imagined a week ago. In the past three days, I've probably said the words, "oh wow," a hundred times.

Yes, I know all this will bring lots of new problems. Huge ones.

Still....wow.

Photo Credit to 9to5mac.com

Game of Regulatory Thrones

GAME OF REGULATORY THRONES – Winter is coming

Like all Game of Thrones fans, I’m still reeling from last week’s season finale. Unlike most, though, I’m also thinking about banking (and I don’t mean the Iron Bank).

A few days before the last episode, I had spoken on innovation and regulation at CFSI’s Emerge conference in Austin. Answering an audience question, I suggested the financial regulators consider creating an interagency council on how technology innovation will impact their work. My remark sparked a Twitter exchange with CFSI’s Rob Levy about whether such an approach would be practical, given that the regulators kind of have their hands full.

Rob seemed to me to be a likely GoT fan, so I tweeted a message to him – “winter is coming.”

Turns out, he’s mainly into House of Cards.  But that thread got me thinking further about the challenge the agencies face in regulating innovation with sufficient speed, clarity, and consistency, while filtering out the bad from the good.

If you’re not into the GoT phenomenon, the first thing to know is that Game of Thrones is not (as I embarrassingly once thought) a game. Rather, it’s HBO’s wildly popular series based on the Song of Ice and Fire books by George R.R. Martin. Its story is set in a magical past where seven powerful families rule kingdoms within a far-flung empire and vie to dominate it all by winning the central Iron Throne.

This drama is profoundly engrossing. So engrossing that both the characters and the audience constantly forget that something else is happening. A far greater menace is gathering, one that seems likely to obliterate all these warring parties, together. A supposedly extinct race of superhuman beings called Wight Walkers has reawakened in the north, beyond a high ice wall that has been guarded against their possible return for thousands of years.

From the series’ very first scene, the audience knows this risk is rising. All of the audience and some of the characters are reminded of it intermittently throughout the story. A few prescient characters fully understand it and in fact are playing the game specifically to unite a kingdom that can fight back. 

For most, though, this overarching danger is unnoticed. Many scoff at warnings, thinking the problem doesn’t even exist. The rest figure that, at worst, it’s remote – distant in both space and time. Everyone has urgent priorities -- here, now, absorbing all their attention.

Of all the kingdoms inside the wall, only the northernmost – the one closest to the ancient danger -- has retained some cultural alertness to it.  For centuries, they have cautioned each other with the words, “winter is coming.”

Game of Thrones is obviously an imperfect metaphor for our regulatory system. Our financial agencies rarely fight, much less seek to rule each other. And they of course do see and work with the big changes evolving in technology.

Furthermore, tech innovation is not a menacing force. To the contrary, it is bringing massively positive impacts as well as new risks.

Still, though, I think this metaphor merits thought. I have become convinced that technology disruption is the most important issue now facing the financial system, and the financial consumer. I think the regulators will have to move it toward the center of their agendas – despite still being overloaded with post-crisis work -- rather than mainly viewing it as a component of other topics.

And I hope they will do this together, because these changes are coming fast, in huge and converging technology trends that will sweep around them all – all the agencies, all types and sizes of financial providers, and all financial consumers, bringing change that needs unified collaboration and thought.

Do you agree?  Disagree? Please share your ideas!

And if you’re a GoT fan, feel free to tie your comment to the story. I’m always hoping to spark more dialogue on my website so our readers can benefit from each other’s thinking (I receive lots of input, but most of it comes privately just to me). In writing this post, I fleetingly considered inviting readers to suggest which GoT characters remind them most of real figures in our financial and regulatory community. I abandoned the idea, of course, as images came to my head of nominations for real-life counterparts for, say, Ramsey Bolton, or  Joffrey Baratheon.  We want to have fun and some edge here, but we don’t want to be mean!

Within that guideline, if you think GoT offers parallels and lessons for financial innovation and regulation, please post them!

To get you started (and to prove I’m not the only person pondering GoT and banking together), enjoy this thoughtful Forbes article by contributor Adam Ozimek on why Westeros lacks a central bank…and whether the Night’s Watch could help (Sam as the next Fed chair?).

Maybe actually spring is coming, if we prepare.

Heading to Harvard – a senior fellowship to write my book on innovation and regulation

I’m delighted to share some news about me.  I’ve been offered a Senior Fellowship at Harvard’s Mossavar-Rahmani Center for Business and Government in the John F. Kennedy School of Government to write my book.

A year ago, I left Treliant with plans to produce “the book that hasn’t been written on the financial crisis,” exploring what happened to consumers and what should happen now.  As I worked on it, though, I found the topic morphing under my fingertips at the keyboard.  My research, conversations, and thinking kept bringing me back to one theme, one force that will make consumers’ lives dramatically better, or frighteningly worse – or both – in the years ahead.  That force is technology.

Exactly a half-century ago, Ralph Nader’s book Unsafe at Any Speed launched the consumer movement and with it, a long public policy push to protect people through regulation. I participated in some of this in my early Washington career. Looking back, the phrase that comes to my mind is, it seemed like a good idea at the time. Actually, some regulatory reforms were clearly beneficial.  Others, not so much – many brought costs that outweigh their benefits. Still others originally made sense, but lost usefulness over time. Those, along with many that outright failed, generally linger on.

Through it all, our laws, rules, and regulatory agencies have accumulated and political debate has gradually calcified around a binary argument in which one side almost always wants more regulation, and the other nearly always wants less.

My book will argue that what’s needed today is different regulation. The existing framework was created to address 20th century issues using 20th century logic and methods. Suddenly, now, the digital age is making it both possible to do vastly better, and necessary to rethink what and how we regulate. With innovation rapidly reshaping consumer behaviors and disrupting traditional industries, change will overwhelm many aspects of the current system.  

I’m going to propose a new approach. It will put the consumer at the center. It will push aside deadlocked debates, explore today’s top consumer risks and opportunities, assess diverse regulatory approaches, and offer a new framework. We’ll look at the tech trends, industry activities, innovation models, consumer habits, demographics, regulatory tools, and political realities, among many things. We will aim for the tech alchemy that expands access and fairness together, instead of trading one against the other.

In the end, I’ll suggest both practical, short-term steps and a strategic vision for the future.

Importantly, my book’s scope will reach beyond financial services, to tackle a broad spectrum of consumer protection regulation and industry practice.

My working title right now?  Safe At Any Speed: Protecting Consumers in the Digital Age. 

Or maybe, “Regulation Innovation,” a seeming oxymoron….

The Mossavar-Rahmani Center at Harvard “sponsors research, facilitates dialogue, and seeks answers to problems at the interface of the public and private sectors.”  Its Senior Fellows are remarkable people ranging from top federal and state executives to leading thinkers in business and law.  I am honored to join their ranks. 

My appointment begins July 1. I’ll be moving there for a year in September to do research and writing, teach a study group, convene thoughtful people, and learn from Boston’s fast-flowering culture of tech innovation.

I will continue my other consulting, public speaking, podcasts, and (soon-to-launch) series of video briefings on regulatory compliance strategy (albeit with tightened prioritization).

I’ll also be continuing to write this blog. My journey over the past year included having a significant health issue arise last summer. I’m fully well now, but it’s a reasonable guess that cutting edge technology saved my life by both detecting and treating the problem. No one is more passionate than I about the promise of innovation. Still, too many technophiles don’t pause to ponder the coming risks.

This blog, and my book, will strive to understand both the upside and downside of innovation, and how best to foster and leverage the good while preventing the bad.

It’s a daunting task. If you’re like me, reading this already has you thinking of issues, themes, objections, and ideas.  Share them with me!  Let’s have a conversation, here. And invite your friends – including from outside financial services – to subscribe to the blog and podcasts by email, enter your email address at www.jsbarefoot.com, and join in the brainstorming.

We need two things – courage to see and speak the truth, and cross-pollination of insight.

Tell me what you think!

Disrupting the Law (War and Peace-Style): My new article in Fintech Law Report

Last January I spoke at a round-table about the four huge, converging tech trends that are on a collision course with consumer financial regulation. The event prompted an invitation from my friend Jim Sivon of Squire Patton Boggs  to write an article based on my talk for Thomson Reuters’ Fintech Law Report.

Lawyers being, well, lawyers, the magazine wanted a lengthy piece – 10 – 30 pages.  (I sometimes think attorneys and academics are the only folks still reading long material outside of books, as time and attention spans relentlessly shrink.)

I told Jim my piece would come in at the low end of the range. As I wrote it, though, I changed my mind.  I was fascinated by the journey this article brought on, trying to envision the actual world these tech trends are creating, and then trying to predict how the regulatory system will, and should, respond.

The article turned out to be l-o-n-g.  It’s not quite War and Peace (1,456 pages), but pretty close -- the longest thing I’ve written in ages other than my own evolving book.

I mention the length because I don’t want you to open it, start reading, put it aside until you have free time, and then never come back – since schedule slack will never come.

Instead, if you’re overloaded, start by scanning through the article.  It has two halves.

The Four Tech Trends:  The first part outlines the four big transformative tech trends. I’m pretty sure you’ll find some things here – maybe a lot – that you don’t know or haven’t thought about.  As the article explains, these trends are not only coming fast. They are also converging.  Once they intersect, everything will escalate and accelerate.

The Regulatory Disruption:   The second half tries to envision how law and regulation will cope with this shifting kaleidoscope of tech-driven change.

The article is HERE. 

Remember:

Financial services is the first industry to face tech-driven disruption while also being very highly regulated.

The innovation will both help and harm consumers. Regulators will be hard-pressed to allow the good and block the bad.

Innovation will not only make it necessary to update laws and rules. It will also make it possible to do better, at last.

Enjoy the article. Share your thoughts here at the blog. And subscribe by email…click HERE.