June 01, 2023

LFP228 – Does Regulation Need a Phase Shift? w/Alistair Cotton co-founder Integrated Finance

39 minutes

Is the structure of regulation in need of refactoring? Do we have a kind of Reg Debt situation – cf Tech Debt – where organic growth has led to complexity, inefficiency and indeed regulations stretched beyond their original purpose?

In this episode Alistair and I discuss some specific examples that would indicate that after as much as a decade of evolution it is perhaps time for a rethink or a refactoring of the reg base.

Integrated Finance was founded when the co-founders found challenges in scaling their prior Fintech startup. Alistair has worked in FS, founded a Fintech and now a Fintech to help Banks and Fintechs so has experienced the regulatory issue in the round.

Topics discussed include:

robot vacuum cleaners – good/bad? Use cases.

“endless nuance”

Alistair’s career journey from FX, through building a banking as a service provider and now infrastructure to help Fintechs and others who need to incorporate some elements of finance scale their businesses more easily

the challenges that unbundling the banking stack leads to when one needs to recombine it again to deliver a seamless product or service

the importance of understanding nuances in an industry when searching for innovative startups

reactive regulation always playing catch-up

e-money licences as a Case Study of where the explosive growth of the largest Fintechs has outstripped the original intention or envisaged parameters of the regulation

Revolut and Wise have around 20 million customers each

operating at scale across multiple jurisdictions and multiple regulations really stress tests the regulation and over-/under- laps

context of banking regulation and the unbelievable lack of a sustained rise in interests in the Fed’s stress tests – so the challenges of regulation go well beyond Fintech into the biggest Banks

the “dear CEO” letters from the FCA as a measure of challenges the FS/Fintech industries are facing

comingled client funds and treating customers fairly as key examples of barometers of issues

the priority of VC investment is always growth rather than making things robust ASAP and the inflow of VC funds as major factors in this context

a further context of banks going bust right now

Railsbank’s challenges as an example of major FinTechs in London running into problems post failed funding raises

interest rates as the common factor behind bank problems and a tighter funding environment

which segments of tech are finding it less of a challenge to raise right now

current focus in Fintechs and how that relates to regulation/compliance

regtech as being fine but the challenge of buying more and more computer systems and then having to manage them all

the operational overhead of regulation and tis computers even if one is the scale of a Citigroup

crypto as another challenge

the need for greater collaboration – whether mergers of regtech or of shared data or of enforcing more sharing of data

important necessary new directions for regulation – esp. standardisation

major example of bad actors where each fintech on its own has to manage the situation but the whole situation would be much easier if the sector shared data in re

~”For Fintechs although they are nominally in Financial Services it’s become a compliance game they are in”

accept that from Day1 as the major imperative and buy-in the necessary products/services

impacts of marketing/client-led business direction

the philosophical challenges of linear rules, assumptions and so forth in terms of control mechanism in a world that’s deeply non-linear

cf the (alleged) attempt in the UK to “level-up” education in the 1970s (via the abolition of grammar schools) ending up with the result being levelling-down

too big to understand/manage/regulate organisations

along with the way too big/complex organisations the nature of money is at the heart of all the challenges in FS

regulators are left to try and manage the mess that cannot be managed from the inside from the outside with linear rules – the cost of compliance with which just further reduce the profitability of the industry and increase commercial pressures

will Finance per se itself be refactored?

shoutouts for Integrated Finance

And much much more

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By Tony Clark

4.6

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