The acceleration to online banking and finance caused by the Covid-19 crisis is showing up gaps in regulation.
There has been a wave of regulation since the financial crisis with the major part of it aimed at ensuring banks have sufficient capital and liquidity. Hopefully, these improvements will bring banking systems through the Covid-19-related economic crisis in reasonable shape.
But that still begs the question as to whether regulation has moved fast enough to take account of the new data-driven and online financial world that is arriving with even greater speed since the pandemic took hold.
Regulators should be figuring out how to deal with this now and not waiting until the dust settles before taking action. But they face quite a task as there are both new kinds of risks – cybersecurity, data protection, innovations that fall outside existing rules – and new kinds of players – big techs and fintechs – to take account of.
Whereas existing regulation is largely entity and nationally-based, the new environment of global big tech requires a broader and, frankly, more imaginative regulatory approach that cuts across boundaries.
In a new report called 'Big Banks Bigger Techs', Oliver Wyman and the International Banking Federation go into detail on the shape of this problem and the response required.
They cite the examples of peer-to-peer lending and money balances in e-wallets as activities that don’t fit the existing framework of being easily classified as either payments or deposits.
Furthermore, with regulatory areas such as data, anti-money-laundering (AML) and counterterrorism financing (CFT), regulators are hampered because they can only act according to the terms of an individual license rather than cross-industries.
The report calls for "…a substantial rethink of institutional arrangements and policymaking frameworks (such as defining new mandates or new regulators, whilst avoiding increased complexity and overlaps), increasing cross-border and cross-sector cooperation arrangements (to enable exchange of data, best practices, and global principles), and strengthening capabilities within regulators (including analytics, tools, skills, organizational structures).”
But, of course, when there’s an economic crisis raging who is really thinking about reforming regulation? The concern is that there will need to be a specific problem in the areas cited before the regulatory community gets its act together.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
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