Regulation and innovation: polar opposites?
Financial regulation and innovation seem like polar opposites, yet they are forced to get along and collaborate. This is apparent from one of the panels at today’s IIF Annual Meeting in Washington. The only representative of a bank, BBVA’s Executive Director participated in the panel which included renowned representatives of regulators and supervisors.
The Institute for International Finance (IIF) asked experts to consider how regulators are adapting to a context of rapid technological change. And vice-versa: how innovation can help the financial industry, not only in improving customer experience, but also in complying with regulation, known as regtech.
José Manuel González-Páramo explained that regtech solutions are emerging that are based on digital technology, like cloud-computing, big data, artificial intelligence and semantic models. Compliance with financial regulation is essentially a matter of information management. Therefore, he feels that these technologies can help banks manage data in real-time and extract more value from data by identifying patterns and hidden trends.
José Manuel González-Páramo at The Institute for International Finance (IIF)
Experts say blockchain has the greatest potential to transform the financial industry. For BBVA’s Executive Director, the crucial element of blockchain is that it allows for a single source of truth for any kind of information, including the kind needed to address compliance requirements. The information is stored in real time, in a consensual manner, is immutable once included in the blockchain and is public for the parties involved.
For regulators and supervisors, blockchain could help to obtain a real-time view of every piece of information about money flows in the financial system, just like a traffic controller can see the transportation flows in a city. José Manuel González-Páramo added that this technology is not limited to just money. It can be used for any kind of information, whether it is related to ownership titles for securities, houses, cars, or any kind of virtual or physical asset. It would be like a big monitor of value ownership and movements, he indicated.
In terms of regulators’ reaction to changes in technology, the head of regulation at BBVA feels it is essential to strike the optimal equilibrium between financial stability and the development of new business models and financial solutions that provide a better customer experience and introduce efficiency gains in the market.
Ian Narev, Chief Executive Officer of Commonwealth Bank; Andrew Bailey, CEO of the U.K.’s Financial Conduct Authority;José Manuel González-Páramo, BBVA’s Executive Director; Sopnendu Mohanty, Chief FinTech Officer of the Monetary Authority of Singapore (MAS);and Richard Teng, CEO of the Financial Services Regulatory Authority, Abu Dhabi Global Market.
A good example of this is the creation of a Digital Single Market in Europe, he says. This European Commission initiative aims to reduce market fragmentation and increase harmonization. BBVA’s Executive Director feels that in this case, international coordination in technology-related regulation would be welcome.
Joining José Manuel González-Páramo on the panel were Andrew Bailey, CEO of the U.K.’s Financial Conduct Authority; Sopnendu Mohanty, Chief FinTech Officer of the Monetary Authority of Singapore (MAS); Richard Teng, CEO of the Financial Services Regulatory Authority, Abu Dhabi Global Market; and Ian Narev, Chief Executive Officer of Commonwealth Bank.