“Does anyone here know how to code?”
At a recent meeting of about 100 banking regulators from around the world, this simple yet provocative question was asked. Now, you may be scratching your head wondering why this question popped up in a meeting on responsible digital finance held by two Alliance for Financial Inclusion working groups (co-hosted by the Central Bank of The Bahamas). I certainly was. The point isn’t really about regulators’ ability to code, it’s a reflection that as a global society, we’re at a crossroads between generations and technology – and that poses serious implementation questions for policy makers and regulators seeking to develop stronger frameworks for digital consumer protection.
The Digital Immigrant Dilemma
Others have reflected on the old days when cell phones and the internet didn’t exist. Those who remember those days – so-called “digital immigrants” who were born before digital technologies transformed how most of us live – have had to adapt to the digital age. In contrast, “digital natives” grew up in the digital age and are generally considered to be more comfortable with digital technologies.
Taking these classifications at face value, a dilemma unfolds in the context of financial inclusion: existing regulators, legal and regulatory frameworks and supervisory infrastructures may be unprepared and at risk of falling behind in an era of rapidly evolving financial technology. Innovations in financial inclusion policy tend to focus on collaborative sandboxes, accelerators and innovation hubs, as well as technical innovations by regulators like regtech and suptech for compliance and financial capability initiatives.
Regulators may be unprepared and at risk of falling behind in an era of rapidly evolving financial technology.
There are also interesting policy developments to support digital financial inclusion. As an example of the types of developments being observed globally, the Central Bank of the Bahamas is rolling out a digital currency in 2020 (Project Sand Dollar), working toward tiered due diligence, and enhancing their national identification infrastructure to drive inclusion. Similarly, priorities in the development and philanthropic communities include real-time transaction monitoring, regulator-industry interoperability, and corresponding enabling regulations.
As promising as these initiatives are, they also raise a lot of questions. For example, how can “digital immigrant” regulators, supervisory authorities and systems learn fast enough in environments that are often resource and capacity constrained and where good practice standards continue to evolve? What type of practical training is relevant for them? Are the policy frameworks, approaches and tools being developed by the likes of the Financial Conduct Authority in the United Kingdom, the Fin Reg Lab, and Regtech for Regulators Accelerator translatable to less digitized environments?
Digital Consumer Protection
While regulators are busy learning to leverage technology to execute their mandates, there’s also more work to be done to promote strong digital consumer protection. The Smart Campaign’s forthcoming and much anticipated digital standards to protect consumers, the Campaign recognized the need to adapt traditional consumer protection standards to account for digital risks, including unregulated providers and agents, reliance on technology, risks to clients in environments that maximize data collection and use, and more complex value chains. The Global Microscope highlighted that cyber security laws are often inadequate and data privacy safeguards require more development and better enforcement to support financial consumer protection. The Smart Campaign is working to update its guidance to regulators to reflect these insights.
As we begin to understand the potential for leveraging technology to develop effective consumer protection regulatory and supervisory mechanisms, we need to also understand how to support sound policy, technical capacity and solid infrastructure for the effective implementation of digital and data-driven efforts by regulators. Policy makers and regulators are essential to promoting an ecosystem for responsible digital financial inclusion. They need support to become better equipped to innovate in their policies and techniques.