A Regulation Revolution In Financial Services

share save 171 16 - A Regulation Revolution In Financial Services

Forbes | | Dec 2, 2018

regtech revolution - A Regulation Revolution In Financial ServicesIf your professional interests take you to the crossroads of financial services, regulation, compliance, and digital - especially data analytics and machine learning - which altogether is known as regtech, you are in the right place. You are part of statistically small and very geek-oriented professional community, but you know this, and though you might choose not to admit this to strangers at this year's festive parties for fear of causing great pain by boredom, you are in good company with this Contributor and my interviewee.

I first met Jo Ann Barefoot when I was chairing the U.K. Financial Conduct Authority (FCA) Industry Sandbox Consultation, where she provided excellent guidance and insights. Jo Ann is one of the most dedicated and busiest advocates of the regtech space on the planet and is truly outstanding in both her knowledge and passion in this area.

She dedicates her time to a number of global bodies and initiatives related to regtech: she is a Senior Fellow Emerita at the Harvard Kennedy School Center for Business & Government, a Senior Advisor to the Omidyar network, sits on the fintech advisory committee for FINRA, is an Executive Board Member of the International RegTech Association (IRTA), is a member of the Milken Institute U.S. FinTech Advisory Committee, and chairs the boards of the Center for Financial Services Innovation and FinRegLab.

See:  Exploring cryptoasset regulation

A former Deputy Comptroller of the Currency and staff member at the U.S. Senate Banking Committee, she is the CEO of Barefoot Innovation Group, the Co-Founder of Hummingbird Regtech, an angel investor, advises financial companies and governments worldwide, delivers a regular podcast with global industry specialists on RegTech, and if all of that is not enough, she is writing a book on financial innovation and regulation.

If you want to understand how technology and the digital revolution will impact regulation and compliance in financial services, Jo Ann Barefoot should be one of your global gotos.

Jo Ann is in London speaking at the RegTech Rising Summit this week so I took the opportunity to get her views on this often technical subject and get us excited about where retech is going.

Lawrence Wintermeyer:  Jo Ann, you do a lot of work in the new field of “regtech.” Can you give us a simple definition of regtech, and tell us who is excited about it?

Jo Ann Barefoot: You’re right about the excitement, which is notable since most people don’t find financial regulation exciting. Something truly new is happening.

“Regtech” is new-generation technology that’s transforming financial regulation and compliance. The same technologies that are remaking everything else, like big data, artificial intelligence, blockchains, cloud computing and voice interface, are revolutionizing the regulatory realm too. They offer the tantalizing prospect of improving regulatory results and cutting costs, at the same time.

Both regulators and regtech firms are attacking pain points in the regulatory chain. Examples include creating “machine-readable” regulations; automating reporting interfaces to enable continuous monitoring of risk; using AI to scan securities market information for signs of misconduct; and equipping mobile phones with chatbots so consumers can report financial scams.

Wintermeyer: I know you’re a former bank regulator. How did you find yourself involved in the regtech space?

See:  Crypto Bear Market Gives UK Regulators Breathing Space to Finalize Crypto Regulation

Barefoot: I’ve been a regulator, Senate staffer, and consultant. About five years ago, I started immersing in new technology, partly through a senior fellowship at the Harvard Kennedy School Center for Business and Government. I realized that current regulation is failing in areas like consumer protection and anti-money laundering and that new technology could do better. I now focus on helping convert financial regulation to “digitally-native” design, and I’ve co-founded a regtech firm, Hummingbird, which combats money laundering.

Wintermeyer: Anti-money laundering, or AML, is one of the most advanced regtech use cases, and the statistics are frankly shocking. The UN says we currently catch less than 1 percent of global financial crime because of technology which is out of date and unscalable. What are the most promising changes emerging?

Barefoot: AML is probably the most expensive and risky regulatory area for banks -- the industry spends at least $30 billion a year to catch that minuscule fraction of cases. And remember, the crimes funded with laundered money are violent -- terrorism and global trade in drugs, weapons, endangered animals, and human beings. A million children are trafficked every year. This is easy money, highly profitable, with low chance of being caught.

Technology can change that. Financial crimes have data typologies, distinctive patterns that become easy to spot if we can consolidate and analyze enough information. Today’s machine learning tools can find the patterns, while new encryption techniques can make it safe to share data much more widely while safeguarding privacy. Technology can also fix the AML “Know-Your-Customer” rules, which currently block millions of innocent people from financial access because they lack traditional identity documents. New digital identity techniques can screen nearly everyone, cheaply and accurately.

We have the technology to do all this well. We need to update the regulations.

Wintermeyer: Regulators currently seem preoccupied with decentralized cryptocurrency exchanges as platforms for money laundering and terrorist financing, which appear marginal next to what is going on in the real global banking system. Does regtech have a role to play here?

Barefoot: Crypto bedevils policymakers because it breaks the molds and because it’s mutating too fast for traditional regulation to keep up. Blockchains arguably have higher promise, and higher risk, than any other innovation except maybe AI. They can accelerate financial processes and reduce costs, whether by moving payments on the internet or enabling new ways to raise capital. Most regulators aim for a balance between over- and under-regulating, but the learning curve is daunting. The road will be bumpy.

Wintermeyer: There is a movement globally toward financial regulators adopting “regulatory sandboxes” to assess fintech innovation in products and processes. Will we soon see regtech sandboxes where regulators could experiment with new technologies like artificial intelligence, machine learning and blockchains? Will we see more regulatory sandboxes being launched by US regulators?

See:  UK banks publish fintech collaboration toolkit

Barefoot: I hope so! Traditional regulatory change is slow. Technology change is fast, and accelerating. The widening gap between the two is loaded with risk for consumers, the financial system, and regulators themselves. One official has said that if regulators hold still today, they’re actually “accelerating backward.”

We can’t speed up regulatory change, soundly, unless regulators can learn faster, and that requires letting them do small-scale experimentation. Regulators throughout the world are creating sandboxes, greenhouses and reglabs: safe, risk-controlled spaces where they can try things out, study how new products and practices really work, and learn hands-on. In the US, the Bureau of Consumer Financial Protection has launched a sandbox-type program, as has the Commodity Futures Trading Commission (CFTC). All the federal US regulators and several states have innovation initiatives launched or planned. Most focus more on testing fintech than trying regtech, but both are coming.

Wintermeyer: You often highlight a remarkable initiative of the UK’s Financial Conduct Authority to test “machine-executable regulation” -- issuing some regulations in the form of computer code rather than words. Is this possible? If so, what changes will it bring?

Barefoot: The FCA is the world’s most innovative regulator and they’ve taken a breathtakingly creative step, running a test of whether some regulations could be issued in the form of code and become, in effect, self-implementing. That could drastically reduce compliance costs, mistakes, and time lags.

The experiment was held under an FCA-invented process called a “tech sprint,” which is essentially a hackathon. Experts in financial regulation and technology teamed up to translate a regulatory reporting requirement from words into code and run it against a set of test data. When the computer produced a correct report -- in ten seconds -- the participants jumped up and cheered. Think about that. When was the last time we saw banks and regulators cheering together?

Wintermeyer: US regulators participated in one of these FCA tech sprints this year, and I know some have regtech initiatives on the drawing board. What path do you see the US taking along with regtech?

See:  5 ways regulation can be a competitive advantage to British business

Barefoot: America has a uniquely fragmented regulatory structure which, for all its strengths, impedes innovation. We can’t readily change it, so we need to make it work better through more innovation and more interagency collaboration.

That’s happening. The Treasury Department issued a fintech report this year that calls on the federal financial agencies both to innovate and to coordinate. There’s a lot of momentum developing.

Continue to the full article --> here


NCFA Jan 2018 resize - A Regulation Revolution In Financial Services The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - A Regulation Revolution In Financial ServicesFF Logo 400 v3 - A Regulation Revolution In Financial Servicescommunity social impact - A Regulation Revolution In Financial Services
Coronavirus resources 800 1 - A Regulation Revolution In Financial Services

NCFA Newsletter subscribe600 - A Regulation Revolution In Financial Services

FFCON20 Homepage Banner v3 updated - A Regulation Revolution In Financial Services

McKinsey & Company | By Philip B, Reet C., Olivier D., Tobias L., and Marc N  | March 2020 The challenges are immediate, with long-term implications for global, regional, and local economies—and for the payments industry itself. Here’s what to expect. Any projection of industry performance rests on assumptions about overall economic activity. The outlook largely depends on the spread of the virus, the public-health response, and the effectiveness of the fiscal, monetary, and broader public response. A relatively optimistic scenario, taking into account these variables, assumes that the virus will be contained after an economic lockdown of two to three months in Europe and the United States. Under this scenario, global GDP would decline in 2020 by 1.5 percent, which we estimate would result in, at most, a decline in payments revenues of around $165 billion, some 8 percent lower than they were in 2019. See:  All businesses seeing 30% drop in revenue due to pandemic will be eligible for 75% wage subsidies: Trudeau Cross-border consumer-to-business transactions are likely to drop. One-quarter of the total decline in revenues in our analysis is driven by cross-border payments, led by a 25 to 30 percent decline in cross-border C2B transactions. This ...
Read More
payments and covid19 1 - A Regulation Revolution In Financial Services
FintechZoom | Jung Min-seo | April 1, 2020 What’s the cybersecurity risk panorama for fintechs in 2020? Accenture’s perception offers some readability The tempo of digital transformation throughout the monetary panorama continues to quicken. In such an atmosphere the digital or cyber risk proposition evolves quickly, making it important to take care of the best requirements of know-how and preparedness, and hold updated with the impression of cyber tendencies. In response to Accenture’s 2019 Ninth Annual Price of Cybercrime report, monetary providers incurred the best cybercrime prices amongst all industries studied in 2018. See: On this analysis, Accenture explains: “As industries evolve and disrupt the present atmosphere, threats are dramatically increasing whereas turning into extra advanced. This requires extra safety innovation to guard firm ecosystems. The following value to our organisations and economies is substantial – and rising.” See:  Smart Cities Offer Promises and Concerns Over Privacy Throughout all industries, Accenture discovered that data theft is the most costly and quickest rising consequence of cybercrime. Nonetheless, it famous that there are a number of drivers behind the evolving world cybersecurity risk for all sectors: Evolving targets: knowledge is now not the one goal in response to Accenture. Moderately, corporations worldwide ...
Read More
cybersecurity - A Regulation Revolution In Financial Services
Fintech Magazine | By Matt High | March 31, 2020 We take a closer look at the eight innovative virtual banks that are digitally disrupting Hong Kong's financial services industry using technologies like AI, machine learning and Big Data With a national GDP of $341.4bn, Hong Kong is a rapidly growing economy and a centre of innovation and digital transformation. The special administrative region's history is rooted in the financial sector due to its low taxation, legislation that favours free trade and a currency pegged to the US Dollar. Despite the financial sector in Hong Kong being dominated by incumbents, it is seeing a rapid rise in fintechs, digital banks and new propositions that are driven by the latest technologies. The rise of virtual banking Last year the Hong Kong Monetary Authority announced that eight virtual banks had been selected to receive licenses to operate in the country. Below we look in more detail at those virtual banks. Ant SME: A subsidiary of Ant Financial, the virtual bank is reportedly going to target the Hong Kong SME market, and is dedicated to providing inclusive banking solutions to smaller businesses in the nation’s economy. Insight Fintech: A joint venture between smartphone ...
Read More
Virtual banking - A Regulation Revolution In Financial Services
Nasdaq Markets | Brian Withers | March 31, 2020 Amid the market volatility, two financial services companies held investor presentations in the past several weeks. Digital payments ecosystem Square (NYSE: SQ) and financial services company American Express (NYSE: AXP) provided updates on the current market situation, and, more importantly, their long-term growth plans. Both companies play in the financial services sector, but they are at different points in their growth cycles and appeal to different kinds of investors. Let's dive into the details and make a determination as to which is a better buy today. See:  Growth in Canadian FinTechs Having Impact on Canada’s Banking Landscape The companies at a glance American Express was founded more than 150 years before Square, but it is only three times Square's size in market capitalization. For dividend and value-minded investors, the financial stalwart boasts almost a 2% yield and incredible bottom-line profits. But Square is growing faster and has more growth opportunity. The case for Square Square's stock has gotten slashed recently as small shops are suffering under shelter-in-place and closure orders for non-essential businesses. In its investor day meeting, company management indicated payment transactions have declined in March, lowered its guidance for the ...
Read More
incumbent versus growth - A Regulation Revolution In Financial Services
CBC News | Kathleen Harris | March 30, 2020 PM warns of 'serious consequences' for companies that abuse the system Businesses and non-profit organizations seeing a drop of at least 30 per cent in revenue due to COVID-19 will qualify for the government's 75 per cent wage subsidy program, Prime Minister Justin Trudeau announced today — adding that "serious consequences" await those who abuse the system. During the daily media briefing outside his residence at Rideau Cottage, Trudeau said the number of people a business employs will not determine its eligibility. Charities and companies big and small will qualify, he said. For those companies experiencing a decrease in revenues of at least 30 per cent, the government will cover up to 75 per cent of a salary on the first $58,700, which could mean payments of up to $847 a week. The prime minister also encouraged businesses to top up their employees wages with the remaining 25 per cent of their salaries. Trudeau said the wage subsidies will be retroactive to March 15, 2020. "We are trusting you to do the right thing," he said. "If you have the means to pay the remaining 25 per cent that is not covered by the subsidy, ...
Read More
justin trudeau funding for small businesses - A Regulation Revolution In Financial Services
Electronic Frontier Foundation | Lindsay Oliver |March 19, 2020 A greater portion of the world’s work, organizing, and care-giving is moving onto digital platforms and tools that facilitate connection and productivity: video conferencing, messaging apps, healthcare and educational platforms, and more. It’s important to be aware of the ways these tools may impact your digital privacy and security during the COVID-19 crisis. Here are a few things you should know in order to make informed decisions about what works best for you and your communities, and ways you can use security and privacy best practices to protect yourself and others. Free Slacks EFF has written a lot about Slack’s data retention issues when it comes to free versions of the software. With so many mutual aid networks and organizing groups coalescing on Slack to support our communities, it’s important that users are aware that the company retains their messages if they're using a free plan—and they can't automatically delete them. By default, Slack retains all the messages in a workspace or channel (including direct messages) for as long as the workspace exists. See:  58 Must-Read Remote Work Resources | 50 Great Remote Working Resources If you are using a paid ...
Read More
covid 19 online tools - A Regulation Revolution In Financial Services
Linkedin | Richard Turrin | March 29, 2020 Neobanks are caught in the middle of a coronavirus induced "flight to quality" that they may not be able to fight. Investors are moving capital away from risk and toward the safety of larger incumbents. Preliminary figures from the Federal reserve show large cash movements into the larger incumbent banks, perhaps based on the belief that they are "too big to fail" and provide a haven for cash. Neobanks are trying to gain deposits and user trust in what is now a very different market than when they launched, and their response to these changes in upcoming months will be critical. For the record, I like neobanks and think that they have had a profoundly positive influence in making banking services better for everyone. See:  NorthOne announces Series A round of $21M USD That said, their position as newcomers, heavy dependence on investor support, high valuations, and lack of profits puts some in the same category as WeWork. A cautionary comparison and perhaps an overstatement, but amid a financial crisis apropos. It’s now harder to see how ease of use will attract investors who are suddenly more worried about trust and safety. Let's look at how neobanks ...
Read More
death of dance - A Regulation Revolution In Financial Services
TechCrunch | Steve O'Hear | March 24, 2020 It all started with a tweet from 11:FS co-founder Simon Taylor. If the U.K. government could be persuaded to provide financial support to the self-employed during the Coronavirus crisis, as it has already pledged for full-time employees, then Open Banking technology could be used to self-certify lost income, and therefore overcome one of the main hurdles of administering potential compensation. The founders of two other London-based fintechs, Fronted and Credit Kudos, were first to accept the challenge, and soon they were joined by dozens of other volunteers from the wider U.K. fintech community with the aim of turning around a working prototype of “Covid Credit” in just 48 hours. See:  Fintechs getting a boost from coronavirus outbreak “Like many, we saw a challenge for non-salaried workers who are currently ineligible for government relief,” says Fronted’s Jamie Campbell. “By using Open Banking, we have been able to quickly develop a simple process that allows non-salaried workers to generate a proof statement which details their past income and the impact of COVID-19”. The Covid Credit team’s hypothesis is that evidencing and validating the income of a sole trader is significantly harder than a salaried ...
Read More
covid credit app - A Regulation Revolution In Financial Services
ADB Institute | March 25, 2020 Policy makers and researchers recently met at ADBI for a workshop examining green infrastructure investment, policy challenges, and economic implications in Asia. Marco Schletz from the United Nations Environment Program Technical University of Denmark Partnership was among the experts featured at the event. Afterwards, Schletz sat down with Asia’s Developing Future to discuss how blockchain and tokenized securities could revolutionize green finance and inclusive development in the region. The views in this podcast do not necessarily reflect the views and policies of the Asian Development Bank Institute (ADBI). Read the transcript bit.ly/2QIe9TH Policy makers and researchers recently met at ADBI for a workshop examining green infrastructure investment, policy challenges, and economic implications in Asia. Marco Schletz from the United Nations Environment Program Technical University of Denmark Partnership was among the experts featured at the event. Afterwards, Schletz sat down with Asia’s Developing Future to discuss how blockchain and tokenized securities could revolutionize green finance and inclusive development in the region. See:  Blockchain and Tokenized Securities: The Potential for Green Finance Marco Schletz from the United Nations Environment Program Technical University of Denmark Partnership Blockchain is an innovative data structure that is used to verify ...
Read More
Marco Schletz - A Regulation Revolution In Financial Services
Harvard Business Review | Marco Iansiti and Greg Richards | March 26, 2020 As workplaces mandate that employees work from home, universities shift fully to online teaching, restaurants transition to online ordering and delivery, and automakers shut down their plants, we’re seeing the most rapid organizational transformation in the history of the modern firm. Yes, companies have dealt with financial crises like the 2008 Great Recession or the dot-com bust of the early 2000s. And many have endured wars and terrorist attacks, election surprises, and previous health crises. But never before have established and evolved economies faced this kind of shock. And nothing quite compares to the physical-digital divide Covid-19 is revealing and how it affects the nature of work. In some ways, you can trace what’s happening today to a huge digital transformation that’s already well underway. Firms have been moving to an increasingly digital core based on software, data, and digital networks for years, requiring a fundamentally new operating architecture. From Ant Financial to Facebook, the new digital firm gains its competitive advantage in three ways: by producing more at a lower unit cost (scale), by achieving a greater production variety (scope), and by pushing for improvement and innovation (learning) ...
Read More
covid and digital transformation - A Regulation Revolution In Financial Services

 

share save 171 16 - A Regulation Revolution In Financial Services