April 27, 2023
Bringing innovation thinking to policy, and policy understanding to innovation
During Money20/20 in Las Vegas, guest host Ally McClosky sat down to discuss the importance of fintechs and regulators working together to support innovation. The session, titled “Bringing Innovation Thinking to Policy, and Policy Understanding to Innovation,” included John Pitts, Head of Policy at Plaid and Kaitlin Asrow, Executive Deputy Superintendent of Research and Innovation at the New York Department of Financial Services (NYDFS).
Driving the conversation:
Why fintechs should think of regulation as a good thing
How government agencies are shifting to an innovative mindset
Why communications and collaboration are important
There’s friction between fintechs and regulators (and that's a good thing). [6:00] Fintechs tend to focus on the upside, while regulations are largely focused on the downside and their legal mandate. This helps create a necessary balance between innovation and the need to protect against risk.
Regulators are eager to follow the market’s lead [8:00] Government agencies like NYDFS are mainly focused on how policy will impact consumers in the long-term. This allows industry changes to be driven by market needs rather than regulations.
“I don't want to move markets. I don’t want to pick winners and losers. Instead, I want the market to do that,” said Asrow
Communication is critical–and it goes both ways [11:20] Regulators need to clearly communicate their mandate as it relates to risk. Similarly, businesses need to explain what they do in a way that makes sense to regulators.
Fintechs need a regulatory affairs or communications executive to act as a conduit. [14:40] This makes it easier for everyone to interact and share governance systems, policies, and procedures. The banking industry already has this—it's not yet built out in many fintech and virtual currency firms.
“I expect you to have an audit commit and I expect you to have a cyber policy,” explained Asrow.
4 things to keep in mind when meeting regulators [16:10]
Assume you’re going to be regulated. Most businesses are likely to be regulated in the near future if they haven't already. Consider this as you’re developing products and services.
Don’t bring an investment pitch. Regulators want to hear about what your business means for consumers and the opportunities or challenges you are managing.
“Talk to me about your risks and how you’re managing them. That is a much deeper conversation you can have with a regulator that shows them that you are ready to be in the [regulatory] perimeter,” remarked Asrow.
Look for ways to add value. Regulators want to know about the trends and challenges you’re seeing in the market. When you share market insight, you’re helping them do their jobs.
Repeat. Expect to meet with an agency several times as you work to communicate throughout the organization. That will allow innovation to permeate all departments.