More than Open-Banking, we need an Open-Minded Regulator.
It seems if you are anyone associated in the fintech industry, a day does not go by when you hear the word open-banking. Today, open-banking is akin (IMHO) to the coming of email. Imagine the possibilities they say, and right they are in saying that.
But allow me to digress. In my work I get to travel and meet a lot of folks. In doing so, I ask a lot of the same questions, juxtaposed in between the conversations and it is always the same answer.
The myopic financial regulator. It seems, everyone is sick and tired of their regulator, but unfortunately their hands are tied.
Pay special attention to this:
I’ll paraphrase what Suresh said:
“Yesterday I was talking to somebody who said ‘In Silicon Valley rules are meant to be broken’
Wrong thing to say in banking.
So the first thing we had to do was, we had to agree that anything the regulator said was correct.
Regardless how irrational, illogical, how out of context, and how incorrect it was, you had to agree.
So that’s your first constraint. For innovation.
You have to agree that whatever they say is right.
Next, you have to agree what ever they tell you to do, you have to do.
Because you’re operating under the privilege of having a charter from them that they can pull it from you anytime they choose to.
So to have the privilege of the charter you pretty much agree to anything that is told to you.
Yes, you have some recourse, but trust me you’re a small bank against Uncle Sam with infinite resources on time and money, and they can make their own rules. And print their own money.
So you have to change your mindset from okay, whatever they say is right, and now they have given me my constraint. Now, within this constraint, what can I do?”
It seems any innovation we wish to do is always restricted by the operating rules as set out by the regulators. It is no hidden secret of my frustration when it comes to regulators. They’ve been drinking their own regulatory kool-aid way too long and somehow believe that they are the only thing standing between a civilized society and a collapsed one.
Why I insist on such a view? Because I have interacted with them. Quizzed them. And in candid conversations, learned how many of them are just simply frightfully ignorant of advances that the fintech community in general is making.
I would like to present an analogy. I apologize in advance for the tangential digress.
Let’s say as a regulator, you only speak English. Now place this very regulator in say Ukraine or Denmark and except them to converse in the native language, it will be very difficult. The entire country of Denmark or Ukraine will not learn English just to speak to the regulator, but the opposite. The regulator would have to learn Danish or speak Ukrainian in order to converse. But what happens, is that because the regulator is weak, uneducated and not up to mark, they go into a defense mode that is offensive in nature.
In plain English, rather than admitting that they lack full knowledge on the subject, etc. regulators down play anything they don’t understand. I’ve seen this way too many times and I wonder if all the regulators drink from the same pool?
Why do most regulators shy away from the cutting edge technologies that can reshape their communities and uplift their economies? Why would anyone sabotage such progress?
I’ve always been told, I need to take the emotions out of it. I need to look at it from the regulator’s POV. I need to distance myself from the crypto crowd and more over, I need to stop saying that the regulator is patronizing me (which is true).
Progress in communities can only happen, if those in charge of things allow some elbow room for innovation. If you remove the oxygen, starts and even incumbent players looking to experiment with the new tools of the trade, will suffocate.
There is an urgent need for the industry players to educate the regulators. We need to have an open dialogue with the regulators, taking them out of their comfort zones and making them experience more of what is happening in the world. Field research, continual education, more awareness webinars and more importantly the ability to have a dialogue with them, without the fear of being chastised by them.
The gap between what most regulators know and what actually exists outside in the real-world and the cutting edge world of fintech, is best known to a few people. Most of the regulators are simply lost. Truth be told, obsolescence had struck them. They simply cannot make head or tail of new technologies, because (a) They are inundated with the daily firefighting they are doing (b) They don’t have enough time to read (c) Not much money is being spent and time set aside for continual education (d) industry outreach to understand more is considered a taboo for many.
In the coming years, particularly our choice of value token (yes, that includes fiat) is accumulated, spent, distributed, regulated, monitored and settled, will be breaking all norms of the past, when we take the analog equivalent, and morph them into their digital equivalents with crypto science, game theory and distributed architecture built into them.
We need a new set of tech savvy, open minded regulators. The old myopic school has to go.