New rules based on the old banking system are at odds with a newly globalised world, in which innovation takes precedent over regulation, and technology and society are the principle axes of change.

There’s a moment in the film The Matrix where the protagonist Neo is offered a red or a blue pill. The blue pill will allow him to remain in the fabricated reality of the Matrix, while the red one allows him to return to the real world and be unplugged from the Matrix.

Which pill do you take? Take the blue pill and maintain the fantasy, or take the red pill and see the reality. Each person has only one choice with no possibility to reverse their original choice. What’s your choice?

I recently took the red pill and it woke up my eyes to a clear chasm in banking.

This is because I present all the time about the forces of change for the future: political, economic, social and technological (PEST). I usually skip over the political and economic because it is less interesting for the audience, and so I focus on the social and technological. Then I was having a debate the other day and someone said: “There’s a disconnect between the regulatory and innovation agenda.” I went "red pill please", and now there’s no going back.

To reform or not to reform?

We had a financial crisis and now have this huge wave of regulatory change. It’s all about Volcker, Vickers, Barnier, Liikanen, Lagarde, Osborne, Yellen; it’s all about G-20, G-8, G-7, EU, US, SEC, Federal Reserve, ECB, PRA, FCA; it’s all about Dodd-Frank, EMIR, MiFID II, PSD II, Basel III, Ucits IV, banking union, banking reform bill; it’s all about the incredible tsunami of regulation hitting the boards.

I noted a while ago that initially the Volcker Rule was outlined in a three-page letter to the US president. When the Dodd-Frank Wall Street Reform and Consumer Protection Act went to US Congress, it took up 10 pages, and when it finally emerged, the text had swelled to 298 pages and was accompanied by more than 1300 questions about 400 topics.

The entire works of Shakespeare amount to about 800,000 words, while the Foreign Account Tax Compliance Act is 900,000. This is not simple.

We are desperately trying to reform the banking system to bring back stability. That is what the Asset Quality Review in Europe is all about, and the implementation of liquidity and leverage ratios under Basel II. But what if this is all for nothing? What if this regulatory stuff is addressing a system that is fundamentally and fatally broken?

Out of time, out of fashion

Maybe this system was built for the 20th-century world of finance and maybe, just maybe, the regulators and governments have got it all wrong. For while the political and economic agenda is trying to create a stable banking system, society and technology are trying to create a new one.

That’s what Bitcoin is all about. Bitcoin is money without government and no banks involved. It has been created by the WikiLeaks generation as the Wikicoin for the modern world. A modern world that has been transformed by air travel and technology such that anyone can connect with anyone, anywhere on the planet and exchange knowledge, ideas, value and currency. A globalised world that needs a globalised government, not a localised world with a localised government.

The government of the internet is the crowd, and the crowd want to be released from control. This is potentially a transformational moment or an evolutionary moment, but the key thing to note is that it is not a transient or quiet moment.

For, as governments and financiers work together to address the political and economic issues, developers and technologists are working together to avoid those issues. In fact, while we have a divide between the 'PE' and the 'ST' of the PEST model, we maintain a divide between the regulatory and innovatory aspects of banking. We split the new world of finance – Bitcoin, iWoca, Kickstarter, Square, Fidor, Moven, m-Pesa, G-Cash, mBank, the Currency Cloud, eToro, Personal Capital, Zopa, Funding Circle, PayPal, Hello, Soon, the Housecrowd, EZBob  – from the old world banks – JPMorgan, Deutsche Bank, BNP Paribas (which owns Hello).

The new world banks focus upon the S and the T, and innovate the hell out of the old world banks until, sometime soon, the old world banks will see the regulatory agenda took its eye off the ball. ‘The ball’ being the customer.

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