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

Digitally-Native Regulation


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.

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Jo Ann