At Suade we are pushing the boundaries of what people are now calling Regulatory Technology (RegTech). As a result, we spend a great deal of time with central bankers, government officials, multi-national organisations and policy-makers. It has been extremely encouraging to meet so many public sector and civil servants who genuinely care and work tirelessly to protect the public interest from harmful change.
As an innovative software company based in London, we also spend a great deal of time with technologists, and other entrepreneurs, particularly in the financial space (FinTech). These people burn the midnight oil because of a burning desire within them to “do something” and enact change to improve the world around them. Whether it is making it easier to take out a loan via peer-to-peer lending, enabling fairer credit scoring and financial inclusion or like at Suade preventing another financial crisis, all innovators are also thinking hard about change.
As a result, we have been in a privileged place, with front row seat to two significant changes that have been taking place simultaneously.
For the past year, everywhere we have travelled the topic of Brexit has come up. From the World Bank meetings in Washington to the FinTech Festival in Singapore, everyone has been watching the slow-moving Brexit and what it means for the future of the EU and rest of the world. Whether you call it political divide, nationalism, populism or de-globalisation, Brexit is undoubtedly an indicator against an evolution towards a unified global state with free trade and free movement of labor. People I have spoken to have often cited a loss of identity. Everyone is now from everywhere and everywhere you go you can get anything. The definition of what is “European” certainly has changed a great deal in the past 50 years. I think what is also clear is that this is not an overnight shift in mentality or a reaction to a particular incident. This movement has been gathering steam over the past decade while another change was also sweeping through the world.
This second change has been the rise of technology to bring people together and drive the economy forward. When I first came to London, you had to buy paper tickets for the bus and tube. Then they introduced Oyster Cards with their magical tap-in tap-out mechanics and now even these are being phased out and replaced with contact-less cards, phones and watches. It started online with e-commerce websites selling items you might have had to drive a couple of hours to find normally. Now you can go online and order rare teas from China and get them delivered tomorrow. Amazon went from selling books to selling absolutely everything pretty quickly. Meeting people and sharing information has never been easier. There are an infinite number of very active forums dedicated to the most obscure topics where people log on and write to each other. Just think about how fast Facebook has become everyone’s personal homepage. Payments apps, digital wallets and blockchain have grown into sectors of their own. Everything is ripe for disruption and no legacy system is safe. At the heart of all of this disruptive innovation is the core concept of cutting out middlemen and reducing costs. Every click a user makes is analysed to reduce any “friction” towards being able to make a swift transaction. You can now spend your entire paycheck without ever touching any cash or even seeing another person.
What is interesting is that these two movements don’t really oppose each other. You can be pro-Brexit doing all your shopping online and you can also be pro-EU and think Twitter is absurd. So how do we reconcile these two powerful forces and keep them in check?
This is where regulation comes into play. Regulation is what manages that fine line between change and stability, innovation and reliability, disruption and safety. Healthcare regulation allows new medicines to enter the market but stops us from being guinea pigs for large pharmaceutical companies. Similarly, financial regulation allows banks to finance businesses while still protecting the hard-earned savings of consumers. Although there is no centralised regulatory authority for technology, the impacts of data collection, algorithms and automated decision-making are being discussed at the highest levels of government.
There has recently been a growing anti-regulatory movement, which could be seen as a boon for large and small businesses alike, but if not managed correctly, could cause another crisis. The government’s primary role is to protect the rights of its people whether that be from external enemies or internal threats. Allowing powerful organisations, some with balance sheets rivalling small nations, to enact their will unchecked on the public and consumer is a serious risk that deserves the attention of the G7/G20.
Regulation is not a science, but a careful balancing of forces that should be dynamic and iterative. At best, it is a process of trial and error that comes in cycles of too much and too little. But this is how it should be, similar to an entrepreneurial journey that is agile and iterative. It should be a continuous discussion and evolution towards an optimal process for change. However, we need to reduce the cost of regulation and its implementation through better systems and technology without underestimating its importance and role in society.
Even if the effects might not be immediately apparent, perhaps even beneficial in the short term, the long term consequences of no regulation can be severe and take much longer to recover from. Just consider the de-regulation of the financial industry in the 1980s and 90s and the havoc it caused two decades later. The format the regulation is in for most sectors is not digestible from a technology perspective and improving that would reduce the “regulatory burden” that small and large companies feel. Learning cycles and feedback loops can only be decreased if we implement sandbox environments and standardised digital formats.
The kind of political changes we are witnessing can cause short term and long term unrest. Hence, why we need to continue to support the hard work of regulatory institutions and the people behind them to balance the powers of disruption and stability. “Agile Regulation” should be embraced as a new approach to learn fast and fail fast while reducing the cost on industry and the public.
See also Lessons from the Internet.