The Banking Circle team was delighted to be back at the Guildhall in London for the Innovate Finance Global Summit earlier this month, enjoying the fantastic event in person, after two years of virtual programmes. On day two, Mitch Trehan, Banking Circle’s UK Head of Compliance and MLRO, joined a panel of experts for a session on ‘Regulatory innovation in focus: When things start heating up.’
- Dr Kay Swinburne, Vice Chair of Financial Services, KPMG
- Arunan Tharmarajah, our Head of European Banking, Wise
- Richard Fox, FCA
- Francesca Porter, General Counsel, Onfido
- Mitch Trehan, UK Head of Compliance and MLRO, Banking Circle
- MOD: Adam Jackson, Innovate Finance
The panel discussed the importance of cross-border collaboration and how the financial services industry is doing this more successfully than many other industries. Dr Kay Swinburne, Vice Chair of KPMG, pointed out that whilst collaboration has increased post-financial crisis, it was already going on before 2008: “The regulators always had a dialogue in a way that they don’t often have in other regulated sectors. So, I would say that financial services is one of the poster children for the way in which you can have enhanced collaboration and cooperation in the space.” Kay went on to explain that the central bank and capital markets teams are already well practised and successful at coming together, with a long history of cooperation.
However, as Mitch Trehan confirmed, international collaboration between regulators only goes so far: “At the policy and international level, at highest level, without a doubt. But as soon as you start crossing borders, talking to different supervisors, different regulators, their approach on the ground is always different. Some of that comes from the culture of the country and what is going on, but if we take a step back there are fundamental approaches to how supervisors and regulators work. You’ve got a rules-based regime like in the US … or principles-based regimes like we have in the UK, which I believe is much, much better… Where the world is moving to, or where it should move to, is that rules-based moves to principles-based, which moves to outcomes-based.
Arunan Tharmarajah, Head of European Banking at Wise, agreed: “At a high level, we see a lot of regulators wanting to collaborate, the intention is there, but when you look at the detail, when you come to implementing things, you get a rule book. It’s this country’s rules, and if you want to do business in this country or this jurisdiction you follow these rules. How do you solve those problems? It becomes very hard.”
Francesca Porter, General Counsel for Onfido, added that the global fragmentation across data privacy laws is adding further complication, duplication and cost: “Trying to comply with all the different regimes, when you have data flows going all over the world to support global businesses, means you have to build your entire data infrastructure in two different places, as well as having teams doing those same things in different places. It’s really expensive and [the data] gets to the same place but with way more complexity, and as we all know, complexity is the enemy of scale.”
Richard Fox at the Financial Conduct Authority (FCA), went on to share how the FCA is looking to tackle challenges with cross-border regulatory interoperability: “The panellists describe what is no longer a prize of collaboration, it has become a necessity. When we come to regulate the newer, digitised and disintermediated forms of finance, we no longer have a practical choice to pull up the drawbridge nationally and regulate it that way. Think about that with crypto, where we are currently spending a lot of our time in regulation. Even if you wanted to, you would not be able to regulate that on your own, it’s simply not feasible anymore. So, we put a lot of time, effort and thought into international collaboration … That starts globally at the level of policy. It’s great to be on a panel to hear somebody else say moving from rules-based to principles-based to outcomes-based, because that is something we’re really attracted to in the FCA and the UK. It is reductive to take Tab A and put it in Slot B and say we have followed the regulation, because what if that regulation achieved a horrible outcome for your consumer? That is clearly not the point.”
As Dr Kay Swinburne pointed out, global commerce and the necessary cross-border payments will continue: “Capital is global, you cannot put up barriers to capital. It will find a way through… Whether it’s about the prudential, conduct, data or tech, all of those things have got a global thread through them, to say they are going national is missing the big picture of how these things happen and flow… The innovators amongst us will find a way of doing things cross-border, even if the national regimes try and keep things national.”
Clearly, international regulation needs increased interoperability to ensure these global transactions are secure and that both consumers and businesses are protected regardless of geography. Richard Fox went on to describe the ideal next steps at global policy-level, to implement such protection: “Agree the basic principles, have those set at the highest level, have them become the watermark, the hallmark, the kitemark, for quality and then leave those to be implemented nationally. I’ll admit, as much as I would love a truly global approach to this, the points Mitch and Arunan made are well made … the reality is that laws will always have to be set at a national scale, supervisors will always be shaped by the culture, the history of what’s gone wrong before in their jurisdiction, so an amount of difference is inevitable. It’s about building from a core level of comparability… Even if the regs are different, can they slot together, can they cohere and not contradict one another?”
IFGS attendees can watch the full panel session on demand here.