While there’s clearly concern about regulation, Collective Next Founder Hamilton Ray said as he kicked off the Innotribe session focused on reinventing regulation, what may be more important is to look at how to reinvent regulation.
Silicon Valley Bank Head of API Banking Dan Kimerling observed that four major trends create this need to redefine regulation. First, the variety of methods for payments has expanded tremendously. Next, the velocity of payments and regulation is changing. Further, volume on traditional rails is increasing. And finally, there is an increasing voracity for financial services in the developing world.
The path to reinvention
Setting a framework for how to reinvent regulation, Anthemis Group Chairman Sean Park suggested that the first step would be to focus on outcomes rather than processes and use design thinking to help prevent obsolescence. A second step could be to have providers articulate expected outcomes and have consumers take responsibility for their actions. Finally, Park said, we need to enforce our laws by agreeing that fraud is fraud and theft is theft.
To move forward, Park suggested using successful approaches of start-ups – fast, ideation, iteration, experimentation. An option could be to create regulatory sandboxes to test new financial regulations and then grow those sandboxes.
If we don’t start experimenting soon, Park opined, regulations will fall over in our lifetime.
Anti-Money Laundering (AML) – a case study
AML would be an excellent test bed, Transferwise Executive Lukas May suggested. AML rules currently require financial institutions to get to know their customers, verify them and keep an eye on them based on narrow concepts of identity – name, date of birth and address. Since the concept of identity has changed, May said, we can use social media details, employer details and where they go on holiday to identify them.
Enhancing AML by using digital sources could end the bias against digital, make customers’ lives easier and make the fight against financial crime more effective.
Along with regulating what people do, Kimerling suggested that regulators also need to regulate machines. As we think about the next generation of financial regulation, he suggested, we have to reimagine and assume there is no person in the middle.
How banks build, test, ship and maintain technology will also become much more important in how financial institutions are regulated.
While there is no single solution yet, the insights from the panelists suggested that regulations do need to be reimagined if they are to remain successful even in the medium term.