I was running a fun panel on regulation this week. That kind of sounds like a lie – whatever can be fun about regulation – but hey, it was. I often reflect on the fact that regulators run with their eyes in the rear-view mirror. They can’t see what’s ahead as they don’t know what to regulate until something happens. Oh wow, there’s a car crash, let’s stop and see why it happened. OK, we can now regulate that. Shame no one bothered to notice the Porsche doing 180 in the outside lane earlier though.
Yep, it’s tough being a regulator. And now, as markets get more and more turbo-charged with technology, it’s going to get worse and worse. We saw this in the USA with the Global Financial Crisis; we’ve seen it in China with peer-to-peer lending; and we will see it again. Innovation models that test the limits of existing regulation are always going to break the system at some point, if it remains unchecked.
However, this particular regulator was lamenting the fact that they are damned if they and damned if they don’t do anything. They said, to be exact:
“The banks attack us for protecting and helping the FinTech start-up community; and the FinTech start-up community attack us for protecting and helping the banks.”
Damned if we do and damned if we don’t.
Awwwww. Shame, huh.
But then I’m thinking about it and he was right. The banks hate the fact that FinTech start-ups and challenger banks deal with light regulation. Their capital requirements, governance structure, regulatory oversight and liquidity levels are all low compared to a bank. Hey Mr. Regulator, stop protecting and helping these start-ups.
The FinTechs hate the fact that banks won’t open up to true competition and a level playing field. That they are being forced to adopt things like Open Banking, but they do it in their own proprietary way. That they make everything difficult for the customer, when all the FinTech wants to do is make it easier and deliver a better customer experience. Hey Mr. Regulator, stop protecting and helping the banks.
But what the regulator, banks and FinTech firms really want is a level playing field. Real competition that can only be achieved by getting the monopolistic banks to have more competitors and for new competitors to have lower barriers to banking markets. That’s why regulators are generally helping the start-up community with light regulations so that they can actually get started. How can you get started if the cost of launching a bank involves around $25 million just to get a licence? How can you leverage against the banks if they’re spending $11 billion on technology a year and you’ve only get $11 million? Sure, start-ups need help if they are to be competitive and level the playing field longer-term.
But then banks are good at lobbying. Their political donations may be a fraction smaller than their technology spend, but it’s still sizable. So, banks are big and frightening but is that any reason why the burden of regulation they have to deal with should be ten times greater than their competitors? That’s not fair, is it?
Oh jeez, it’s tough being a regulator. Damned if you do and damned if you don’t. Ah well, all the more reason for becoming a compliance officer, I guess.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...