Financial services regulation as a creator of opportunities

The United States presidential race is in its home stretch. Trump is confident of victory but his policies for the financial services industry are questionable. In his manifesto he states he wants to rid the US of the Dodd-Frank law, which he feels is impeaching on the amount of capital financial institutions can hold. His opponent, and a former First Lady, Clinton, suggests this would be catastrophic and will disadvantage many. Whoever wins, regulation is still likely to shape the way banks conduct themselves. 

The question is, can regulation drive innovation in the FinTech industry or will it create a roadblock? In uncertain economic times, the Dodd-Frank law was passed to ensure banks don’t take high risk approaches when lending money or making investments in the stock market.

Lending can take many forms and one in particular, mortgages, is what caused the most recent global economic collapse. What regulation has done is open the door for FinTech start-ups to plug the gap in lending. Zopa, the peer-to-peer lending service, is doing this for individuals who struggle to get personal loans from banks that spend a considerable amount of time validating customer details for lending purposes.

Similarly, the UK is rife with new financial regulations. One of these regulations motioned banks should devolve responsibilities across departments, something called ring-fencing, whereby the investment side of the bank is completely separate from the retail side. This makes sure that both have enough internal, and separate, capital to cope with a potential, new recession.

The recent Competition and Markets Authority (CMA) report stated banks should share their customers’ data with rivals, so consumers who give consent can see where they can find the best deals. This was posited as the Open Banking framework.

This is starting to prompt banks into thinking about their technological solutions and how they cater to the customer’s needs. For a start, banks can help themselves by improving their apps. They also need to start thinking about their internal technologies which can help them assess future customer needs and create products to suit them. This is similarly important to the ring-fencing directive which also states that technologies should be devolved too. This migration of systems could become a sticking point as banks suffer notoriously from lethargic legacy systems. This is a great opportunity for financial institutions to upgrade these old systems with technology which is more capable of handling modern day, real-time demands from consumers.

During a time where regulation is playing a massive role in the way banking institutions operate, opportunities are appearing to help the evolution of financial services. The world needs regulation to keep the rogue traders and dealmakers in check but this shouldn’t make lives more difficult for customers. Customers need their banks to be regulated to ensure their money is used in savoury way and regulations has, in essence, forced banks to make morally correct decisions for their customers.

Today we see regulation creating FinTech innovation cycles. Companies like TransferWise, a different way to transfer money globally between accounts without incurring high transaction costs, is replacing cumbersome services offered by banks or SWIFT. Apple and Android Pay, global technology giants cum mobile payment providers, are delivering financial services faster through mobile access for billions of people worldwide.

In conclusion, regulation shouldn’t be perceived as a way to stifle the way banks function, but as an opportunity to allow consumers to become better informed through innovative FinTech and modern banking practices.

The fact is, better technology allows banks to stay competitive in an age where consumer confidence is at an all-time low.