Regtech Requires Partnership With Regulators. Jo Ann Barefoot, CEO of the Barefoot Innovation Group and co-founder of Hummingbird Regtech, offered a vision for how regulation could be transformed by regulation technology into something that looks and feels completely different from what we have today.
For instance, regulators could adopt Apple’s App Store model.
“The regulators could say, if you want to innovate in compliance, you can be on our App Store platform, you have to meet these standards, then have at it — innovate rapidly instead of slowly. We'll watch over it,” Barefoot said.
Regulators could issue rules in the form of computer code that would be self-executing: Banks could plug it in and they and their supervisors would know they are compliant.
There could also be a shared pool of real-time data that regulators and banks could look at. This would replace the sampling examiners do and the annual, monthly and quarterly reports banks have to provide. And regtech could provide an alternative for identity verification, Barefoot said.
“The data breach at Equifax is an example of the fact that we're kidding ourselves by thinking our identities are somehow protected by having a unique Social Security number,” Barefoot said. “Our Social Security numbers are all over the dark web and for sale. We need new digital methods.”
A combination of biometrics, attestations in which people vouch for each other, and monitoring behavior patterns could provide identity verification.
Technology has already started affecting regulation, Barefoot said.
Some regulators, she said, are working on providing regulation in formats that are machine readable and easily searched, so companies can determine whether they apply to them. Others, including the Securities and Exchange Commission, are using AI to help find misconduct and insider trading.
Barefoot suggested three things must occur before enlightened regtech can be possible.
One is more collaboration between regulators, policymakers, financial services executives, tech people and advocates.
“We have a problem with being able to talk to each other,” Barefoot said.
Another is regulatory sandboxes.
“The regulators themselves need a chance to get hands on with new technologies, understand what's good and what the emerging risks are,” Barefoot said. “If you've got several regulators who only see fintech through looking at a bank that has a partnership with it, which is what happens today, they're not going to understand deeply and they need to get more ability to run experiments, get empirical information, do those things innovators do, learn fast through trial and error in test bed environments.”
And third, she suggested creating a separate channel for regtech.
“Instead of trying to figure out what we should do to this whole massive system, we should leave it there and start building something small on the side of it, use experimentation and let companies and regulators try their own solution in an innovative lab-type design.”
The emerging of the new “super-segment” of high-income, highly active banking consumers.
Ultimately, Barefoot sees the creation of a new system that runs parallel to the old — at least for now.
Banks could either stay regulated the way they are today, or “come into this new system, plug your data in to ours, we'll agree on standards by which we're going to evaluate it, we'll catch problems early,” she said. “And if you do this, we're not going to make you do all the compliance stuff you have to do over here, because we don't really care how you got there, as long as we're empirically sure you did. Over time, maybe someday the big old system will wither away because people will have opted in to the new one.
https://www.americanbanker.com/news/will-regtech-kill-bank-jobs
