I finished a very interesting day attending, and speaking at, the Office of Financial Research‘s Financial Stability Conference, held annually by the University of Michigan.  This year’s focus was fintech, with policy questions spanning the gamut of the market ecosystem.  One of the quite interesting (and challenging) questions raised by OFR was how to avoid “soft” regulatory capture.  Specifically, since regulators are increasingly dependent on the information provided by the regulated entities, especially insofar as they may themselves carry out their own pilots and trials of new technology, what can they do to not be overly influenced by those who can potentially package the data in ways to suit their own private agenda?

In the article Fintech Trilemma, yours truly makes the argument that there are a number of supplemental strategies may be appropriate to enhance the effectiveness of regulatory experimentation, testing and pilot programs.  One, which was more private sector standard-setting, clearly won’t help solve capture problem, even as it may help address some other policy aspirations.  But I think the other two might indeed help:

  • Domestic regulatory coordination. To the extent domestic regulators coordinate, they can compare data parameters for testing, as well as the data received from similarly situated market participants to help
  • International regulatory coordination. International coordination can help do the same, and even lever one source of inefficiency—the lack of harmonized approaches and data fields—in ways to help again compare information received when testing and evaluating local projects. Still, this kind of deep policy coordination is not exactly what international regulators of fintech hubs are focusing on at the moment.

For videos of the session and speakers, you can check out Michigan Law’s conference website.

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