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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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Ready for Revolution?

Mallory Kwiatkowski

For me, 2018 closed with what I called my “world tour” (check out the mini-videos I posted along the way on Twitter and LinkedIn). For weeks I was crisscrossing the globe -- on one trip, I actually circumnavigated. At each stop, on three continents, I talked with people at conferences and meetings, absorbing observations and lessons and insights. When I got home, I realized my travels left me with a new vision.

Picture this scenario.

What if financial regulation was highly effective and was also inexpensive?

What if complying with regulations was easy and low-risk?

What if people’s financial data was always safe? What if most money launderers got caught? What if financial consumers, including lower-income ones, all thrived by using affordable, well-chosen, well-tailored, transparent services?

These ideas sound like fantasy in today’s financial and regulatory environment, but they’re becoming realistic, and even likely, thanks to the technology that’s revolutionizing both finance and financial regulation.

The Truth-in-Lending Act turned fifty last year. The Bank Secrecy Act and Community Reinvestment Act aren’t much younger. As these and many other major banking laws hit the half-century mark, it’s time to ask how well they are working in achieving their goals, and at what cost.

The regulatory buildup that Truth-in-Lending kicked off in 1968 had multiple objectives. One was consumer financial protection, pursued especially through the many TILA-inspired laws that mandated standardized consumer disclosures. For laws like the Community Reinvestment Act, the hoped-for outcome was broadened financial inclusion. Anti-discrimination laws like the Equal Credit Opportunity Act aimed for both -- fairness and more inclusion. The Bank Secrecy Act, meanwhile, was meant to fight financial crime and, after 9/11, terrorism. While all of these statutes have produced real benefits, most have fallen far short of their intended results. We still have millions of consumers who are in trouble with financial products they don’t understand, despite disclosures. Millions of people can’t access the mainstream financial system and instead rely on high-cost alternatives. And on money laundering, the UN says current efforts catch less than one percent of it. That’s a stunning record of failure.

It may be that these results were the best we could do with the technology that existed when Congress passed those laws, but it’s not the best we can do now. New, innovative fintech can drive financial fairness and inclusion to levels that have been unimaginable under old technology and regulatory rules. Meanwhile innovative regtech can transform both regulatory and compliance processes to cut risks and costs, at the same time. We can be on the brink of a golden age for both consumer finance and financial regulation.

Look at the milestones that occurred just in the last month of last year:

  • FDIC Chairman Jelena McWilliams launched an office of innovation aimed at “transforming” how the agency regulates banks.

  • The CFPB issued a proposal for running its regulatory sandbox and issuing “no-action letters” that allow financial companies to experiment more freely with innovation.

  • FinCEN, the FDIC, the OCC, the Federal Reserve and the NCUA issued a joint statement encouraging banks to explore regtech solutions for anti-money laundering and to conduct pilots of new approaches (a development highly notable both for its embrace of innovation and the fact that it was an interagency action).

  • Commodity Futures Trading Commision Chairman Chris Giancarlo made a speech saying regulators “have no choice” but to transform their strategies, (there’s that word again) and described plans for “CFTC 2.0.”

  • Representative Ted Budd introduced a regtech bill to encourage the use of technological innovations.

And there’s much more. Notice that a lot of it is being driven by the agency heads themselves. Everywhere, today, are winds of change. Regulators, bankers, fintechs and regtech firms are entering a new chapter, and increasingly, they’re doing it together.

It’s going to be a regulatory revolution. It’s going to be a movement.

World Tour Highlights

The “world tour” offers glimpses of the change underway. It kicked off in Las Vegas at Money 20/20, whose theme this year was The Money Revolution. As with last year, I chaired the conference regulatory track. I also hosted a regulator town hall, moderated a meetup-style gathering where people could mix and mingle with regulators from across the globe, and gave a speech on the Avant-Garde stage on -- what else? -- Regulation Revolution. Then it was back to DC, and then to events in Los Angeles, and then to Singapore (the Monetary Authority of Singapore's Fintech Festival drew an incredible 45,000 people this year!). From there I went to London for LendIt Europe, and back to San Francisco for a regulator event, and to Seattle for a meeting on global financial inclusion, and then back to London to speak at Regtech RisingFintech Connect, and the Centre for the Study of Financial Innovation’s insurance tech event, and finally up to Boston for a big Boston Regtech meetup. Plus we had numerous detours back to Washington, including for the ABA/ABA Finance Crimes conference, the Consumer Federation of America’s conference, and finally, home for the holidays.

Other News

I was thrilled to receive the NFCC Making the Difference Award when I spoke at the National Foundation for Credit Counseling Conference in Dallas.

Please check out this Forbes story: A Regulation Revolution In Financial Services, where Lawrence Wintermeyer interviews me on regtech.

If you haven’t seen it already, I hope you will read my op-ed as it appeared in the American Banker on why “Banking needs a regtech sandbox”.

Upcoming Events

Vaduz Roundtable, "The Financial System 2030", February 15-17, Liechtenstein

The Honest Talks for AI on Regtech, February 27, New York

UNC Law's Banking Institute, March 22, Charlotte, NC

Santa Fe Group 12th Annual Shared Assessments Third Party Risk Summit, April 10-11, Washington, DC


Recent Events

FINRA Regtech Conference, January 17, New York

Boston Regtech Meetup, December 10, Boston

CSFI Big Data in Insurance, December 6, London

Fintech Connect, December 5-6, London

Regtech Rising, December 3-5, London

ABA Financial Crimes, December 2-4, Washington, DC

Consumer Federation of America Financial Services Conference, November 29-30, Washington, DC

LendIt Europe, November 19-20, London

Singapore Fintech Festival, November 12-16, Singapore

Money 20/20, October 21-22, Las Vegas

Recent Barefoot Innovation Podcasts

Fintech in China and around the World: Anju Patwardhan of CreditEase

The Human Side Of Technology: Sopnendu Mohanty, Chief Fintech Officer of the Monetary Authority of Singapore

The American Dreamers: EarnUp Cofounders Matthew Cooper And Nadim Homsany

Try Something New: Lend Academy and LendIt Founder Peter Renton

Moving the Regulatory Mountain: CEO of JWG and Founder of Regtech Council, PJ Di Giammarino

Complete Financial Inclusion: The World Bank’s Harish Natarajan

My Guest Appearances

2019 Outlook: CFPB Innovation Policies May Face State Challenges

S&P Global Interview

Can The Industry Change So Drastically Such a Short Time?

Interview with Christopher Woolard at LendIt Europe

Future of Banking Enablers at the Singapore Fintech Festival


Be sure to follow me on TwitterLinkedIn, and Facebook and to subscribe to Barefoot Innovation wherever you listen to podcasts. As always, check the website for more updates. Most importantly, keep innovating!

Jo Ann



Mallory Kwiatkowski

It’s been a while. In Washington, the months of July and August are often said to be the “slow months,” with busy professionals hitting snooze on email notifications and maybe even taking a trip or two. In the world of regtech though, it has been a whirlwind -- all summer long, and into the fall.

Some key gatherings were highlights in catalyzing progress in how regtech can help solve issues facing the financial and regulatory arenas, especially on AML. One was a hackathon, or “tech sprint” held by the UK’s Financial Conduct Authority (FCA), in which I participated. Over 400 people spent three days designing better ways to combat the money laundering that funds terrorism and global trafficking in drugs, weapons, endangered animals, and human beings. The exercise produced working projects on a range of promising solutions, such as pooling anonymized data for machine-learning analysis, which would enable authorities to uncover large-scale crime rings while still safeguarding the public’s privacy. It is really exciting to see the movement coming out of these sprints and I know I’ll have more to tell you soon.

Back to the idea of July and August being slow, summer months -- in just a matter of days this summer, three events signaled accelerating progress in the United States. On July 31, the Treasury Department issued its long-awaited report urging US bank regulators to foster innovative financial technology, or “fintech.” A few hours later, Comptroller of the Currency Joseph Otting announced that he will implement Treasury’s recommendation to create a new kind of national bank charter for fintech companies. And a few days later, Bureau of Consumer Financial Protection (BCFP) Acting Director Mick Mulvaney pledged interagency collaboration on innovation and said his agency has joined other countries in a new Global Financial Innovation Network, or GFIN.

These efforts are great opportunities to try to catch our regulatory system up to the rapidly evolving technologies that are available.

This is a topic I’ll be addressing on the Revolution Stage at Money 20/20 in Las Vegas. If you’ll be there, I hope you’ll join me on Monday, October 22nd. I’ll be addressing the Regtech Revolution: A New Era of Digitally-Native RegulationHereis a sneak peek at what you can expect from my talk.  I’ll also be MC of the Sunday Regulatory Track again this year, which will include a regulator town hall. I hope to see everyone there.

A Few Notes

Going forward, look out for the newsletter from me about every other month. In the meantime, please keep up with my Barefoot Innovation podcast - we’ll let you know whenever new episodes are released. We have some amazing guests in the queue for you.

Check out the lists below to see some of what I’ve been up to and where I’ll be this fall.

Upcoming Events

Money 20/20, October 21-24, Las Vegas

Singapore Fintech Festival, November 12-16, Singapore

LendIt Europe, November 19-20, London

ABA Financial Crimes Enforcement Conference, December 2-4, National Harbor, MD

RegTech Rising, December 3-5, London

Recent Events

Lombard Risk Conference: Beyond 2018: What’s Ahead? September 13, New York, NY

Finovate Fall, September 26, New York, NY

NFCC Connect Conference, October 2, Dallas, TX

CFTC TAC Meeting, October 5, Washington, DC

Online Policy Lending Institute, October 9, Washington, DC

P20 Atlanta, October 10, Atlanta, GA

American Banker Regtech 2018, October 15, New York, NY

Recent Barefoot Innovation Podcasts

Know Your Customer: Alloy CRO Laura Spiekerman

Talking Through the Storm with Jan Lynn Owen

Machine-Readable Regulation: Compliance.AI CEO Kayvan Alikhani

Transforming Identity: GlobaliD CEO Greg Kidd

Congressman Gregory Meeks on Win-Win Fintech

Innovation at a Small Bank: Radius CEO Mike Butler

Data that Deepens Financial Access: Experian and Lendup

Regulatory Challenger: LabCFTC and Daniel Gorfine

Regulation Revolution: The Financial Conduct Authority and Digitally-Native Regulatory Design

My Guest Appearances

Breaking Banks Podcast

ABA RCC Podcast

CFTC Talks Podcast

Lend Academy Podcast with Peter Renton

Bank On It Podcast

ABA Financial Crimes Podcast

Bank On It Podcast, Live from Lendit

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

Jo Ann

Community Reinvestment Act: Thinking Outside the Box

Mallory Kwiatkowski

What does modernizing the Community Reinvestment Act have to do with standardizing shipping containers? I’ve been pondering the parallels.

At LendIt in San Francisco (which attracted over 5,000 people this year), I held a main stage fireside chat with Chris Larsen, the Executive Board Chair of Ripple (here’s the video, which LendIt says has been the most-watched of the conference). I’ve known Chris for years and also had him as a guest on my podcast show, so I encouraged him to share a metaphor he often uses to explain how we should change the global payments system.

In the book, The Box, Mark Levinson chronicles the mid-20th century move to standardize shipping containers. Previously, cargo was loaded onto ships item by item, and then at the destination was unloaded dockside the same way. Then it was reloaded, again by hand, into new vehicles to travel onward by road or rail. The introduction of standard-sized containers enabled packing and stacking without wasted space and, more importantly, rapid transfer of the containers between ship, train and truck. Loading costs per ton plunged from $5.86 to $.16. World trade surged.

Ripple hopes to create a comparable transformation for payments, by developing an interoperable “internet of value” that enables everyone, everywhere, to transact in the global economy, at nearly no cost, whether they use dollars, rupees, yen, XRP, Bitcoin or anything else. Ripple is building rails on which such a system can run. In our chat, I said to Chris that of all the impressive things happening in fintech, this seems like the one most likely to change the world.

And as Chris explains, the world will change most for those at the bottom. Several billion people today are locked out of the mainstream economy because they don’t have a safe, easy, affordable way to transact. It’s one reason that central banks worldwide view payments modernization and fintech as priorities not only for financial inclusion, but for economic growth.

Which brings me to the U.S. Community Reinvestment Act -- another government strategy seeking to empower lower-income people by widening access to financial services. Last week I did an interview with Charles Lane of National Public Radio, discussing the Treasury Department’s report on updating the venerable 41-year-old law. As Treasury and others have noted, CRA was enacted in a bygone age -- before interstate banking, much less online banking, not to mention mobile banking. Cell phones didn’t exist in 1977. The World Wide Web was more than ten years in the future. Not surprisingly, CRA was designed, and still is, to encourage banks to serve lower-income people in the geographic areas around the institution’s physical branches.

That’s a problem, since most banking today happens online and a growing share happens on the phone. Banks’ CRA efforts, accordingly, are increasingly mismatched with the actual needs and preferences of the consumers this law is supposed to help, in an age when lower-income and minority customers are disproportionately high users of mobile phones, including for financial tasks. Many of these consumers never had desktop computers and so leapfrogged straight to mobile services when they could, as did hundreds of millions of others in the developing world (more people today have access to cell phones than to plumbing). 

Moderating the compliance panel at LendIt

CRA needs to be retooled to reflect and leverage modern banking, but there’s a much bigger opportunity. It also needs to leverage fintech. The mobile phone is the most democratizing force in the history of finance. That’s partly because it can do for finance what shipping containers did for trade, cutting costs to a fraction of traditional levels. It’s also because services delivered through the phone reach everyone. And it’s also because these services can actually be better, offering far more benefit, with vastly more interaction. They can enable people to save and invest easily, to budget easily, to make payments easily, to manage bill-paying easily, to manage their debt easily, to smooth income and expense volatility, to fend off predatory practices, to protect loved ones with mental or aging challenges, to understand finance and their own financial health easily, and affordably. They are converging, moreover, with other innovations, from blockchains that can reduce banks’ operating costs to new kinds of underwriting data that can accurately assess risk of lending to people who lack traditional credit histories.

New technology can make the world look a lot more like one CRA’s sponsors originally hoped for. I know, because I was there. I was on the Senate floor staffing the bill the day it passed. A year later, I became Deputy Comptroller of the Currency as the OCC began to implement it. The law has accomplished a lot over these decades, and we should keep its strengths in tact. But we should also do better, rewarding banks for driving financial inclusion and consumer financial health with new technology, outside the old box.

Recent Events
LendIt Fintech USA, April 10, San Francisco, CA
Bank Director “The Reality of Regtech”, April 18, New York, NY
- World Bank/IMF Spring Meetings - Financial Inclusion Workstream, April 19, Washington DC
Women in Housing and Finance Annual Symposium, April 25, Washington, DC

My New Barefoot Innovation Podcasts
Affordable Financial Advice - Nerdwallet CEO Tim Chen
Sponsor Bank: Cross River Bank's CEO Gilles Gade
Digitally Native Finance Starling: CEO Anne Boden
Collaboration Innovation: Charlotte Crosswell and Dan Morgan of Innovate Finance

Upcoming Events
Texas Bankers Association Annual Conference, May 3, Houston, Texas
Women Corporate Directors Global Summit, May 10, New York, NY
Comply 2018, May 16, New York, NY
- FCA TechSprint, May 22-25, London, UK (By invitation only)
 -CFSI’s Emerge, June 6, Los Angeles, CA
North Dakota Bankers Convention, June 11-12, Fargo. ND
American Bankers Association Regulatory Compliance Conference, June 26, Nashville, TN

This Month’s Must-Reads
GAO report on Artificial Intelligence - I participated in their forum
March Capitol Hill CFSI Fintech Panel - Via Kate Flocken's Medium article
Bank Director Magazine - Ready for RegTech? 

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

Jo Ann

Global Sandbox

Mallory Kwiatkowski

Last week was UK FinTech Week in London, and the old City was bursting with ideas, conversation and people gathered from all over the world. I spoke at the Innovate Finance Global Summit, which explored the world’s newest technology in the oldest venue I’ve encountered -- the 800-year old Guildhall, where we met in crypts and in spaces with names like Livery Hall, Grocer’s Hall, the Old Library and the Chief Commoner’s Parlour. I also keynoted the FSD Africa gathering of African regulators at the nearby, equally venerable, but grander Mansion House, a conference co-sponsored by Cambridge University. I was able to join in events ranging from the World Economic Forum’s roundtable on artificial intelligence to the UK Ministry of Trade fintech design sprint. I talked, one-on-one, with leaders in fintech, regtech, finance and regulation from literally dozens of countries.

An awakening is sweeping through these sectors. It’s a realization that we’ve begun to digitize both finance and financial regulation, that this will transform them, and that if we manage it right, both realms can become far better than ever before.

Of all the big thinking aired last week, the most exciting might be the idea of creating a Global Sandbox for financial regulators.

The word “sandbox” sounds playful and therefore unserious to many serious financial regulators. As brand-building, though, it’s been a huge success. The UK Financial Conduct Authority launched its initial regulatory sandbox in 2016 under its Project Innovate and Innovation Hub.  Today, dozens of other countries have emulated it (some using different terminology, such as “RegLab”).

The sandbox concept has caught on because it creates a tool that is otherwise missing from the regulators’ toolbox, namely a controlled, contained, safe way to learn fast, through experimentation. As I have written elsewhere, regulators need this new device, because their traditional methods of learning are too slow for, and too remote from, the bleeding edge of the technologies reshaping finance, from blockchains and cryptocurrencies to digital customer identification and machine learning in underwriting. If regulators choke on such changes, the public will never benefit from their upside potential. If they stay hands off, some of these developments will cause harm -- and will be hard to stop once they are rooted in and spreading throughout the market. Sandboxes can’t solve all of this, but they are crucial to evaluating potential benefits and risks early, and helping industry and regulators develop shared thinking on how innovation should evolve.

Last month, the FCA continued to plough new ground by publishing a Global Sandbox Proposition. Its strategy head Christopher Woolard (see my podcast with him), says the UK’s sandbox work with over 60 firms has enabled important experimentation, strengthened consumer safeguards, shortened innovators’ speed to market, and increased access to financing. Noting that many financial services are global, the agency also says UK firms are now testing concepts in multiple countries’ respective sandboxes, and the FCA is learning from the sandbox efforts of other nations. It is inviting input on whether and how to work toward a global sandbox, perhaps overseen by a new College of Regulators.

During Fintech Week, FCA leaders convened international regulators, innovators, and others to think through whether the idea has merit and if so, how to pursue it. A global sandbox could test both fintech that can benefit consumers, and also regtech for use in industry compliance and for regulators themselves. Hands-on experimentation, undertaken side-by-side with innovators and with other regulatory bodies, could open an invaluable, rapid route to optimizing financial regulation for the digital age.  

A note on Fintech Week:

If someone wanted to launch a U.S. version of fintech week, they would face a geography challenge. As Lawrence Wintermeyer has noted, the UK has an edge in fintech and regtech because it combines “tech” like the U.S. west coast, “fin” like New York City, and “reg” like Washington, DC, all within a fifteen minute taxi ride. That means, crucially, that the people know each other. In the U.S., we should actively bridge the gaps between these three communities.

CFSI panel on Fintech and the Federal Government, U.S. Senate Dirksen Building

I helped this month in an effort to do just that by moderating a Capitol Hill panel for the Center for Financial Services Innovation. We brought in five fintech firms -- AffirmCircleLendUpPetal, and Stripe -- and talked about regulatory challenges faced by innovators. We had a great audience of congressional staff, regulators and policy leaders, and hope to convene more such discussions.

Recent Events

Featured podcasts:

I enjoyed recording this podcast with London’s 11fs

My new Barefoot Innovation podcasts

My latest article:

            BankThink: Regtech could help stop human trafficking - American Banker

Upcoming Events:

  • FCA TechSprint, May 22-25, London, UK

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

Digitally-Native Regulation

Mallory Kwiatkowski

Better, cheaper, faster.

Finance and financial regulation are both being digitized. As with all things digital, both will become better, faster and cheaper, all at once.

Digitization is not automation. Finance has always used technology to automate processes that were designed in the analog-era, mainly to speed them up. Digitization, in contrast, sets aside old process and starts fresh, refreshing the question of what the goal is and then leveraging today’s ubiquitous data and new analytics to get a better outcome, more easily and at a lower cost. The difference is akin to how digitally-native young people absorb new technology instantly and intuitively, while older people have to work at it.

Transitioning from analog to digital design will be challenging for industry and government, partly because the leaders of both are not (yet) digital natives. Government has two daunting tasks ahead -- figuring out how to regulate innovative finance, and also how to digitize its own processes through regtech. The shift has begun and is gathering momentum worldwide.

Beyond making things happen fast, cheap and well, digitization does another thing. It creates a new system within which imaginative people build yet more innovation. Creating the iPhone, for instance, enabled everything in the App Store. Digitizing finance and financial regulation will transform the possibilities for how financial services can be designed, delivered, priced, comprehended, used, and regulated.

This will be the story of 2018. Amazing breakthroughs are coming fast. I’ll share them here.

Speaking of re-focusing on the goals of regulation, January was Human Trafficking Awareness Month, which makes it a good time to remember why anti-money laundering (AML) regulation matters. Analog-era AML compliance is onerous and ineffective -- according to the United Nations, we catch just 1% of global financial crime. Frustrated financial leaders chafe at the sky-high costs and risks involved. It’s worth remembering, though, that AML is intended to root out terrible things, like the opioid epidemic, terrorist financing, and international trafficking in weapons and yes, people. It costs $7,000 to buy a human being in the United States.

Current AML techniques rarely catch these crimes. Digitized AML can.

Here’s an article I co-authored with my Hummingbird Regtech co-founder, Matt Van Buskirk, on how to do it.

Recent Events

My new Barefoot Innovation 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

Digital Gifts

Mallory Kwiatkowski

In this holiday season, many of us are giving and receiving ‘techie’ gifts and gadgets. Some of these are things that didn’t even exist a year ago. Inventors are building, fast, on the foundation of digitized information that has been laid down for us. Some of their creations are solving problems that had always seemed unsolvable, or had not even been perceived as problems at all, because there were never ways to solve them. It was things were.

As we end the year, imagine a tech-driven, problem-solving gift exchange among the people who care about finance, financial regulation and technology. The circle would include banks (small and large); fintech, regtech and tech companies; regulators, law enforcement, and legislators; and consumer advocates, NGO’s, and academics. They would be in the United States and other advanced economies and in the developing world.

Each of these groups often feels misunderstood by the others because they deeply know important things that the others don’t. What if they could, metaphorically, take the thing they would most like to have understood, place it in a box, wrap it in bright paper and ribbon, and present it to another group who, through the magic of the season, would open it, examine it, and miraculously grasp everything the giver knows about it? What problems might be solved if we could all see the changing financial world more holistically?

Here’s how the exchange might go.

From fintech and regtech firms to regulators and banks:

Both finance and financial regulation are transforming from analog to digital design. This is because data and computing power used to be scarce and expensive, and now are abundant and cheap. Digitization will change finance and financial regulation just as it changes everything else, making it all faster, cheaper, and better, and spurring innovation we can’t yet imagine.  Help us shape this transition to optimize benefits and manage risks.

From regtech firms to countries fighting terrorists and traffickers in drugs, guns and people:

We can help you stop them. The UN says the world catches only one percent of the $1.6 trillion in annual financial crime. We have new technology that can turn the tide in this battle, but we can’t use most of it until the laws and rules are modernized for technology, and to update our focus on law enforcement outcomes.

From regtech firms to political leaders concerned with the opioid crisis:

You’re missing what might be the best tool for solving this epidemic -- again, new technology can find the laundered money and help shut this down.

From fintechs to regulators:  

Innovation has the potential to solve most of people’s problems with financial inclusion and financial fairness, if you regulate it right.

From fintechs to consumer advocates:

Same. Look at the upside potential for consumers, and also help us understand the risks you fear so we can design solutions. Please help the regulators see the positive opportunity and encourage them to try new approaches.

From regtech firms to regulators:

We can improve policy outcomes and reduce costs at the same time. We know that sounds too good to be true, since historically cutting costs almost always compromised results. Now, though, digitized regulation can be both cheaper and better.

From regulators and advocates to fintechs:

These innovations can help people, but also harm them. Help us think through new regulatory standards.

From regulators to fintechs:

We can’t let high-risk activities into the banking system, no matter how promising they are. You can’t be a bank, or work with a bank in ways that endanger its customers or its stability, if you have a high risk of failure. This isn’t about bureaucracy or traditionalism. We have to guard the safety and soundness of the financial system and in turn, U. S. and global wellbeing. Help us learn to bring innovation into the system without risking it.

From regtech firms to community banks:

We might be your regulatory salvation, because we can dramatically cut your compliance costs, and cut your risks, at the same time. Help us make the regulators comfortable with our new regulatory solutions.

From policymakers and advocates to the tech world:

You’re at risk of losing public confidence in innovation due to data breaches and some companies engaging in unethical behavior. Help us build public and cultural consensus on standards, including ethics for using data and artificial intelligence.

From fintechs to fair lending advocates and regulators:

If you’ll let us use alternative data, we can make lending more inclusive and also more sound. The traditional tools exclude qualified people. Let us prove it to you.

From regulators and fair lending advocates to fintechs:

If we allow use of alternative data on lending, we’ll have to monitor how it fares through an economic downturn.

From the developing world and financial inclusion advocates to regulators:

“De-risking” to comply with Know-Your-Customer rules has become the new redlining. It’s blocking deserving people from economic access everywhere, and especially in the developing world. New technology can enable fast and inexpensive identity verification for almost everyone, improving both financial access and risk. We need to use it.

From government to financial and tech companies:

We have to do better on data protection and cyber-security. We can’t sustain an online economy that’s fundamentally unsafe. Data needs to be protected from criminals, from inappropriate use by you, and from inappropriate use by us. We know data is the life’s blood of innovation. Help us find new standards and technologies to use it well.

From fintech firms to policymakers and consumer advocates:

Protecting people from identity theft and cyber-threats requires moving beyond social security numbers. Government-issued ID numbers were designed for the paper-based era. Now those forms of identity are the easiest of all to steal, use and sell. Criminals enter stolen identity information online more accurately than real customers enter valid data, because their programs don’t make typos. We need high-tech authentication like biometrics, digital attestation, and data-based verification. Look to the developing world as the leaders.

From fintechs to community banks:

We might be able to solve your growth challenges. What if you could grow in place by enlarging your market vertically? Instead of having to add geographic locations, add new products, or locate in a growth market, you can grow inside your current footprint by soundly serving more of the people already there. The breakthrough is three technology trends. First, new data analytics enable more accurate underwriting of people who fail traditional risk screens. Second, new technology enables consumers and small businesses to manage their financial lives more easily, so you can equip people with tools that make them better customers. And third, you can grow inexpensively through mobile delivery instead of branches. Remember, lower-income people are disproportionately high users of mobile financial services. People have phones. They know how to use them. They interact with them constantly. Put your bank there.

From fintech and regtech firms to regulators throughout the world:

Look to the UK’s Financial Conduct Authority for inspiration and models on both how to regulate fintech and how to use regtech. They are far ahead of the rest of the world, although several other countries stand out.

From fintech and regtech firms and banks to U.S. policymakers:

The fragmentation of the U.S. financial regulatory system is a serious problem, and despite U.S. agencies’ helpful innovation initiatives, it’s getting worse. Innovation is breaking the molds of regulatory structures that were designed around old industries and products (consider Bitcoin and IPO’s). We have five federal regulators that directly supervise depository institutions, plus several dozen other federal agencies involved in financial policy, plus the fifty states. Innovators sometimes don’t know who regulates them. Many can’t scale up efficiently or even engage with banks. Good innovation may choke to death on regulatory confusion. Banks may lose competitive market share because it’s so hard for them to change. Other countries want to build regulatory bridges with the U.S., but can’t tell which agency to connect with. U.S. regulators need new models for close collaboration, rapid shared learning, and decision-making.

From U.S. regulators to legislators:

We need leeway to try new things and to communicate and collaborate more easily with each other and with industry. Old laws impede fluid communication, from the Administrative Procedures Act to the sunshine and anti-deficiency laws, all of which serve valid goals but need reexamination for the digital age. We also need your support as we undertake careful experimentation with both fintech innovation and with using regtech. We need to hire people like data scientists. We need objective research in areas like artificial intelligence and new uses of data. We’ll have to figure out where to get new resources.  Importantly, we -- and you -- need real expertise in how technology is changing finance and financial regulation.

From law enforcement and regtech firms to policymakers:

Here’s a question: are we sure it still makes sense to try to block money launderers from the financial system? It did when our AML laws were written, but back then we lacked today’s huge data sets and machine learning that can analyze patterns in how people move money. Maybe we should let the launderers in, identify them, watch them, and catch more major criminals. At the very least, we need much more high-tech use and sharing of data, including anonymized data typologies that the whole system can use to spot priority crimes.

From industry and regulators to academics:

We need objective research and testing of financial innovation, producing data that policymakers can trust. We need ways to do this quickly, to keep pace with today’s rapid cycles of technology change.

From fintech and regtech firms to regulators:

You will have to speed up. Not to accommodate us, but because the risks you guard against will rise unless the regulatory system can keep pace with technology change. We respect the fact that your agencies are designed for good reason to be careful and deliberate and risk averse. But technology is changing faster than traditional regulatory processes. Increasingly, the highest, more complex risks will arise because policy is lagging behind. We’ll need deep rethinking of regulatory design.

From regtech firms to universities:

We need people who are experts in both law and technology. Law schools should teach coding. Tech schools should teach regulatory design. We need new specialities in both professions building hybrid knowledge. We also may need new professional codes of conduct, like those in law and medicine, for data ethics.

From the developing world to the advanced economies:

Look to us for innovation. Our countries are ahead in some areas for two reasons. First, we’ve had much faster expansion of mobile financial services because we’ve had such rapid and broad adoption of cell phones (more people now have access to phones than to plumbing). This also means we have hundreds of millions of consumers who are getting their first-ever access to the financial system, so we’ve been learning how to serve and protect them. Second, some of our financial regulatory systems are younger and less entrenched than in the developed world, which makes some things harder, but also makes it easier to change. In both mobile services and regulation, we’re essentially doing a digital leapfrog over the advanced economies. We will soon have virtually ubiquitous financial inclusion, through the phone, and we’ll be leading the way on regulatory systems.

From U.S. big banks to regulators and advocates:

We need to modernize the Community Reinvestment Act. It was written forty years ago when banking was done through physical branches. Now we can serve lower-income consumers and businesses better with mobile services. Give us CRA credit for doing so.

From fintechs to banks and regulators:

Banking has always embraced technology and innovation, and it’s tempting to view today’s changes simply as further evolution. Partly that’s right, but mostly, today’s technology is different.  Past innovation was mostly about automating processes that had been designed in the analog era. It accelerated traditional activities that were originally paper-based, essentially by adding a layer of automation on top of them. Digital technology sets aside the old process and starts fresh, achieve the goal by leveraging data, machine learning and artificial intelligence. It’s truly new. Better, and cheaper.

From fintechs and banks to regulators:

Let us move into the cloud. It’s not less secure -- it’s more secure, if done right. It’s also less expensive, enabling more financial services that can serve more people affordably.

From banks to regulators:

Consider how you can help the industry bite the bullet on modernizing our IT. Most banks have old systems, often accumulated through long-ago mergers and acquisitions that were never deeply integrated. Some of it uses programming languages no longer taught in college -- and our cadres of experts will retire before long. The seams between these systems are full of problems, from security risks to compliance mistakes. Furthermore, we can’t readily use our own data, which we’ll have to do to compete. Fixing this is expensive. What’s the best regulatory environment to move toward a new system?

From regtech firms to everyone:

Some regulation could be issued in the form of computer code. It could be not only machine-readable, but machine executable -- self-implementing. This could drastically cut both costs and risks. Of course this new regulatory model would not work for everything, but where it fits, it could be introduced gradually and voluntarily. Meanwhile regulators should build data portals allowing firms to connect directly through API’s that enable real time, full-data monitoring for signs of problems or trends needing human review. Sampling-based risk review is a relic of the days when full data was hard to get and analyze. Now risks can be detected early, system-wide, and even prevented. This approach, too, could be introduced gradually and be optional for the industry, so policymakers would not have to force it on the whole system at once. Early adopters might be fintechs and community banks with relatively simple products. Maybe this kind of monitoring could have prevented the subprime meltdown and financial crisis.

From innovators to regulators:

Start small. You will need reglabs or sandboxes as test beds to see how innovations perform, in safe environments where customers can’t be hurt and systems aren’t threatened. Look at how the UK’s Financial Conduct Authority is doing regtech “tech sprints,” gathering policymakers, industry and academics in “hackathons” to fashion new approaches in areas like regulatory reporting and digitizing the rule book. Progress requires collaboration across the ecosystem, to try things out and learn fast.

From the tech world to policymakers:

If you have an important problem that’s always been unsolvable, either because people disagree on the solutions or just due to the nature of the issue, consider whether today’s technology can fix it, or at least make a big dent. Again, new technology really is different. It’s not a panacea, and of course it creates some new problems. Still, we can use it to meet huge challenges, including some we’ve traditionally attacked through regulation and public policy, often with poor results. In finance, we can achieve full financial inclusion. We can make it easy for people to manage their financial lives in healthy ways. We can improve regulatory outcomes and reduce costs, at the same time. We can start winning the wars on terrorism, illegal drugs, and human trafficking by actually catching the laundering. We need to come together to do these things, and much more.

For myself, I’m starting into 2018 excited about all these issues. I’ll be tackling financial crimes through Hummingbird and helping foster financial inclusion and health through BIG and also continuing to chair the boards of CFSI and the newly-formed FinRegLab, which will be conducting empirical research on financial innovation. I’ll look forward to working with all of you in the new year!

Recent Events

Recent Podcasts

In case you missed it from last month's newsletter, I had great fun turning the tables to be the podcast guest of Lou Carlozo on the BAI’s great show: BAI podcast: The Unstoppable Rise of Regtech. Listen and enjoy!

Upcoming Events:

  • OCC Bank Information Technology Conference, January 9-12, Washington, DC

  • Innovate Finance Global Summit, March 19-20, London, UK

  • Texas Bankers Association Annual Conference, May 3, Houston, Texas

  • Comply 2018, May 16, New York

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


Mallory Kwiatkowski

A short post this month, as I’m in the midst of an intensive “world tour” speaking on fintech and regtech. In November and December I’m doing three trips to Europe, three to Asia, and one to Africa (if we can sort out the logistics!). I had to decline another in Asia to get home for Christmas. And between international travels, I’m also speaking at U.S. conferences in Washington and New York.

Each event is distinct, but collectively they’re a global mosaic of fintech and regtech activity. Several dimensions stand out.

Focus:  Many of these gatherings are on regtech only. That’s new. A year ago, regtech events were rare, and pretty much nonexistent in the U.S. Now, over just two months, I’m speaking at three dedicated regtech events, at the “regtech day” of several fintech conferences, and on “regtech panels” at others. Regtech is roaring into our lives.

Audience: Most of these events draw broad audiences, but a big subset are for the regulators themselves. Financial regulatory bodies worldwide are grappling, together, with the novel opportunities and challenges arising from innovation. How can it grow their economies? How should should they regulate fast-growing mobile financial services, especially in the developing world? What are the challenges -- and what’s the right role for government -- in consumer protection, financial inclusion, cyber-security, identity authentication, anti-money laundering, crypto-currencies, ICO’s, shifting competition models, protecting systemic stability, and building modernized, inter-operable payments systems?

Size: The Monetary Authority of Singapore grew its Fintech Festival from about 13,000 people last year to an estimated 30,000 this month. The tagline called it the “world’s largest fintech conference,” but surely it’s the world’s largest financial event of any kind. People came from all over the world, attesting both to the rise of fintech as a powerful new global sector, and also to Singapore’s remarkable leadership in remaking financial regulation. This is not a remote effort by one country. It’s part of a robust, integrated global dialogue among regulators and industry, aimed at profound change that will eventually affect every financial company. For more on the MAS vision, here’s my podcast from last spring with its fintech head, Sopnendu Mohanty.

Worth noting:  this enormous fintech “festival” was sponsored not by a trade group and not by a conference company...but by a central bank.

Here are my events:

Speaking of regtech, I had great fun turning the tables to be the podcast guest of Lou Carlozo on the BAI’s great show:  BAI podcast: The Unstoppable Rise of Regtech. Listen and enjoy!

New podcasts:

This month’s must-reads:

Other upcoming events (in addition to those listed above):

  • OCC Bank Information Technology Conference, January 9-12, Washington, DC

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

Jo Ann

Money 20/20

Mallory Kwiatkowski

This year’s Money 2020 was spectacular -- about 11,000 people packed into the huge Venetian conference venue in Las Vegas, teeming with energy and ideas. As I said last month, financial people should attend Money 2020 just to absorb the enormity of the change happening where finance meets technology.

The organizers innovated this year by adding emcees for the thematic tracks, including me for the regulatory afternoon (take note for next year: this is always on the first day --  Sunday!).  To my eye, our audience seemed double the size of last year’s. It seems regulation is becoming central to innovation, and vice versa! We had brilliant speakers on all the hot topics. (Watch for upcoming podcasts with three panelists -- Financial Services Roundtable CEO Tim Pawlenty, NerdWallet CEO Tim Chen, and Chris Woolard, who leads strategy for the UK Financial Conduct Authority and shared the first set of results from their famous Regulatory Sandbox.)

The best moment came at day’s end. Past attendees had asked for more interaction with regulators, so Money 2020 set up a town hall. They invited all the current regulators who spoke at the conference, plus several key past ones. I think it was a bit of a surprise, but...everyone said yes.

As a result, we had nine -- count them! --  current and former regulators on the stage for the final session. I was out in the audience playing the Oprah role, so I never got a photo, but it was a powerful visual image. The stage crew had to do a quick makeover to squeeze in smaller stools that could fit everyone in. We had two former Comptrollers of the Currency -- Eugene Ludwig and Thomas Curry. We had the heads of innovation for the CFPB (Dan Quan), the SEC (Ryan Van Grack), and the CFTC (Dan Gorfine). We had senior innovation leaders from the OCC (Amy Friend) and the FTC (Duane Pozza). We had the former financial commissioner of the state of New York (Benjamin Lawsky). And we had Christopher Woolard from the UK -- representing the rest of the world.

Something that struck me, and others who commented later, was how candid they all were, and also how collegial.  It was clear, watching them, that some of these people know each other well and that the conversation on stage mirrored a larger one they’re already having. I doubt this chemistry was there, so strongly, a year ago. The change bodes well for regulatory collaboration -- which is essential for faster, smarter, and of course, more consistent policy-making as these agencies grapple with the novelty and breathtaking speed of technology change. I finished the day feeling hopeful.

My other Money 2020 highlight was that Hummingbird Regtech, of which I’m cofounder, was selected to pitch in the startup contest. We didn’t win -- the winner was Steady -- but we generated tremendous interest. CEO Matt Van Buskirk and COO Joe Robinson made a powerful presentation on the harm caused by financial crime, the inadequacy of today’s tools for catching it, and the opportunity to transform the whole space with new technology. We were flooded with inquiries and are excited about next steps.

I’m writing this post (a bit late) from Heathrow Airport in London, after the first stop in a seven-country world tour I’m doing on fintech and regtech between November 1 and December 21. Coming off Money 2020 last week and a Ripple blockchain conference for central banks in New York on Monday, I’ll be speaking at three events in Europe, three in Asia and one in Africa (plus three in Washington and New York), over seven weeks. About half of these events are on regtech or for regulator audiences -- a cross-section of the global scene on  innovation.

I’ll share a few highlights as I go -- I’m trying to post quick video clips from each spot on Twitter and LinkedIn. Plus, I’m getting some amazing podcasts.

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