The US falls behind many other countries when it comes to innovation. In financial services, artificial intelligence, crypto, blockchain, open banking, and other technologies that transform the way the world does business, the US is just slow(er).
Much can be explained by political gridlock, use of our regulatory bodies as political tools, the torturous pace of regulatory operations, kowtowing to special-interest groups, and the game of red-versus-blue ping pong.
Ian Bremmer, Eurasia Group’s president, shared this perspective with me: “Europe’s technocratic bureaucracy—the thing we tend to complain about—gives them an advantage in regulatory enforcement. They consult broadly and effectively with industry and academic experts together, while the heavier hand of lobbyists in the United States slows the system down.”
In my practice, I work with clients of all types as they develop and deploy new financial products and services. It’s not always easy to determine how those fit into the regulatory landscape.
Of course, these business leaders are focused on maximizing profits, but they truly believe in democratizing finance and making credit more accessible to all Americans, and want the US to lead in financial technology innovation.
Clients consistently come to me and say, We will follow the rules. We just need to know what the rules are. But for emerging markets and technologies, we are painfully behind. Lacking clear rules and regulations, innovators and the organizations driving it are left to guess, keeping their fingers crossed that the nation’s regulation-by-enforcement roulette doesn’t land on them.
Without clear guidelines, many emerging tech participants in the market are also cut off from basic operating necessities, like proper commercial banking relationships and corporate insurance—the tools businesses use to keep them and their customers safe.
Let’s take a quick look at a few areas where we are lagging behind.
Open Banking
This nifty practice provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through application programming interfaces permissioned by consumers.
Why? To allow the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers. Consistency is key.
We’ve been behind in this area for years. And in 2022, the Consumer Financial Protection Bureau announced it would exercise its dormant authority under Section 1033 of the Dodd-Frank Act.
CFPB Director Rohit Chopra has said, “While not explicitly an open banking or open finance rule, the rule will move us closer to it, by obligating financial institutions to share consumer data upon consumer request, empowering people to break up with banks that provide bad service, and unleashing more market competition.”
That rule-making process will take time. Market participants are submitting comments now, and the process started late. This is just one of many areas where the lethargic pace of our regulatory environment is underserving consumers and business. By comparison, the UK launched its open banking initiative long ago, in 2017. How are we five years late to the party?
Artificial Intelligence
It’s all the hype. We’re enamored with its possibilities. But our nation lacks basic AI policy. In October 2022, the White House’s Blueprint for an AI Bill of Rights outlined how AI regulation should look.
But the EU already started that work four years ago, and according to the World Economic Forum, has been leading design, development, and deployment of the technology while protecting consumers. It’s great that we have some guidance from Washington. But the devil is in the details—and we don’t have the details yet. Let’s keep the AI bus moving.
Crypto and Blockchain
While the continuous conflation of the two terms remains frustrating, we’ll stick to coins and exchanges for now. The digital assets industry has been begging for guidance for quite some time. How long have we been warned and waited for true crypto regulation?
Other than the classic application of the US Supreme Court’s Howey Test to determine whether a particular coin qualifies as a security, there has been little to nothing to guide corporate or protect consumers.
Regulators point fingers at each other. There is confusion about who has what authority. That is a problem for Congress to solve. And we all know how functional that branch of government has been lately.
Bottom Line
My client and colleague Jason Henrichs of Alloy Labs Alliance, put it best. “Historically regulators have sought to avoid being prescriptive. The resulting gap inevitably results in something bad happening and then a regulatory response that often outweighs the initial problem. Building better and more inclusive financial products requires partnership between the innovators and the regulators that create guardrails.”
We have an industry of innovators who want to build wealth, create jobs, and keep the US at the forefront of financial technology. Our lawmakers and regulators must help us do that. Seriously, we’re begging you.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Dara Tarkowski is a lawyer, author, speaker, podcast host, managing partner of Actuate Law, and outside general counsel to FinTEx.
