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 Rising, Fintech 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.
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”.
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
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
My Guest Appearances
Be sure to follow me on Twitter, LinkedIn, 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!