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




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

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