Banking 2025: Can regulators catch up to tech changes? - American Banker

Innovative future for regulation will be large focus

With regulators setting out to be more innovation-focused, a variety of nongovernmental groups are trying to aid the process, conducting projects looking at the future of financial policy for both the policymakers and financial services companies.

Harris and Barr are involved with the University of Michigan’s Center on Finance, Law and Policy, which has developed projects looking at the future of central banks and small-business consumer protections tied to fintech, among others.

The center’s Central Bank of the Future deals with how those central banks might evolve so that financial inclusion becomes a core part of their mission.

“Part of our task is to think about technology that those institutions could leverage in the ‘regtech’ or ‘suptech’ arenas, ways they might change their processes, how they might even change their explicit mandate such that they would be in a position to better promote and foster financial inclusion around the world,” Harris said.

Barefoot’s group is developing what she called a “regtech manifesto” on steps to make the regulatory system more innovative, as well as a legal memo in concert with the Buckley law firm on the statutory impediments for regulators to incorporate more tech-focused tools.

“We have to get the information in the regulatory system into digital form so that we can see it. The information that we use to oversee banks … is mostly locked up. It’s opaque,” she said. “They need smarter data. They have to become data-centric. I’m optimistic that there is fast-developing interest in this.”

FinRegLab, meanwhile, has conducted a project focused on the predictive power of cash-flow data — versus more traditional factors such as credit scores — in the underwriting process.

Cochran said even though “there could be regulatory changes that would come in connection with using this data more often … it’s permissible for people to use it now.”

“It's just that a lot of people don't” use it, she said. “If you adjust underwriting models to incorporate new information, what are all the issues that come along with that adjustment? If you can figure that out in the cash-flow space, that might be very useful to the extent that people want to use some other kind of data downstream.”