Tech, Trust, and the New Face of Financial Supervision | The CXO Conversations

Guest:

• Jo Ann Barefoot, Co-founder & Chief Executive Officer, Alliance for Innovative Regulation

Host: 

• Matteo Rizzi, Investor, Author, Co-founder, FTS Group

Full Transcript

[00:00:00] Matteo Rizzi: Hey guys! Welcome back to Breaking Banks Europe at Singapore FinTech Festival, powered by the The CXO conversation. Thanks once again for hosting us. I am here with, Jo Ann Barefoot, CEO and founder of the Alliance for Innovative Regulation. It's not the first time we are hosting you, Jo Ann at Breaking Bank. Welcome back.

[00:00:28] Jo Ann Barefoot: Thank you. Nice to be back.

[00:00:30] Matteo Rizzi: Jo Ann, you and I go back a long way. I want to say a few years ago, we always describe the different pillars of the ecosystems and we usually say, ' You know, the regulators are always the missing one.'

Everyone was dealing with startups, banks, technology players and investors of course. I remember vividly, all keynote influencers, whatever they open up their speech saying,' Regulators are missing (from FinTech) .' I think you guys, if I can put you in that family, came back a long way, don't you think?

[00:01:02] Jo Ann Barefoot: Absolutely. I'm a former bank regulator myself and my feeling on this is, if the regulators don't get their part right, nothing else gets optimised. So that's what we work on.

[00:01:16] Matteo Rizzi: Tell us a little bit about your story and how you end up with this super cool company title that you have founded. Tell us a bit of your story.

[00:01:25] Jo Ann Barefoot: I have worked for decades, mainly in consumer financial protection, financial inclusion. I have worked for the US Senate. I was deputy controller of the currency of the United States. Did a lot in the consulting world through the years. Always working on regulatory issues around those challenges and also financial crime.

And about 10 or 12 years ago, I really started looking at the emergence of New Tech and FinTech, realizing that it could solve problems that have never been solvable in finance and especially on the impact on the consumer. I did a two year, senior fellowship at Harvard and was researching these issues.

How is technology changing consumer finance and how should we regulate it? And I just had an epiphany that we're going to regulate it wrong because our regulatory system is not designed to deal with rapid mold breaking changes like we have now. At the risk of sounding grandiose, I appointed myself to work on that problem and then founded a nonprofit (AIR) when we're working all over the world with regulators and are in the regulatory ecosystem to try to bring the technology to the table for regulators to use and to help them understand how the markets that they're overseeing are changing.

[00:02:46] Matteo Rizzi: You and I see each other a lot in emerging markets. I am sure that I met you at least in Southeast Asia, Africa, and Latin America more than once. If you had to explain in simple words.

Why is regulation so important for emerging markets? Everyone would understand that in complex economies, everyone understand the different roles. How does it change the role of regulators in emerging markets?

[00:03:15] Jo Ann Barefoot: Yeah, that's such a great question because the first thing is, we have been through now more than a decade of realising that once everybody had a mobile phone in their hand,

we had the opportunity for a whole new way of delivering mainstream financial services to everyone instead of just through bank branches and expensive, old models. There has been spectacular success in that. Financial inclusion, especially in payments, is far from perfect, not complete, but completely revolutionizing. Hundreds and hundreds of millions of people have been brought into the formal financial system through the phone. That required a certain amount of regulatory attention to be sure that was being done right.

But now, if you have hundreds of millions of new customers receiving financial services, you have to protect them from the bad things that can come through that phone. Scams, frauds and the over indebtedness. The government has a role that to come right behind inclusion to think about the protection issues. We are doing a lot of work on that. We have a tech sprint going right now in West Africa, under a grant from the Gates Foundation, working on payments, fraud and consumer protection in West Africa. We are working all over the world on these kinds of consumer protection issues.

[00:04:41] Matteo Rizzi: I want to highlight on one thing that you mentioned. The fact that mobile phone becomes a point of entry, it also means that, there is a variety of new type of data that are coming to play. And you know, I'm a coach and a mentor to a gazillion of startups in the past 20 years since my time at SWIFT.

I still remember at the beginning, the very early credit scoring models that were analyzing from the behavioral data from, 'How fast do you type an address or your own name on your phone?' to payment related questions like, 'How many bus tickets did you buy with the phone.' We even ran it in Africa.

How disruptive is it for a regulator, when all of a sudden, we are invaded by all these new type of data and making sense of them.

[00:05:37] Jo Ann Barefoot: Absolutely. And this is true for emerging markets, regulators and everyone else. The huge transformation here is that information has become digitised and we have new ways to analyze it, particularly with artificial intelligence.

If you think about that from the lens of a regulator and a risk manager. The revolution is a massive increase in opportunity for transparency. Regulators are trying to scan the system they are supposed to oversee and ask what is going wrong? Who is violating the law? Who's doing something that's risky? What is the new trend that is emerging? What are the new scams or frauds that may be emerging? What are the new threats to privacy?

And old fashioned regulatory approach had a lot of trouble getting the clear picture and transparency because the information has been fragmented. It was on paper or it was locked in some old database that didn't communicate with anything else. All of that is becoming accessible and not a minute too soon because the financial system is becoming more and more dynamic, more and more innovative, full of good opportunities, but full of risks also.

And the regulators need better tools. They need to put that visibility into the system. If you think back to the financial crisis that started in the US. Subprime mortgage field turned into a global recession, we probably could have avoided that if the regulators had better ability to see the contagion that was developing early on in those markets that led to the cascading of risk throughout the world.

[00:07:23] Matteo Rizzi: You remarkably combine your huge experience in the field with a fresh mindset by not only reinventing, but you invert the way you approach your profession, right? I usually see the average age of central bank governors and most of their direct reports. They don't look exactly like young entrepreneurs.

[00:07:49] Jo Ann Barefoot: Right. This is true.

[00:07:49] Matteo Rizzi: Or millennials.

[00:07:50] Jo Ann Barefoot: Yeah

[00:07:51] Matteo Rizzi: This is the first fact which everyone would agree with. But I want to combine this with the fact that on day one at Singapore FinTech Festival, I moderated the talent stage and we had a session of 50 students that went on a program called Blockchain Guardians that was all about compliance, Web3 and digital assets.

How complicated is it, for a regulator to attract the right type of talents today. Where do you even study this stuff? If you do not have 20 years of experience and you want to help regulators to innovate. Don't you think there is a bit of a disconnect?

[00:08:34] Jo Ann Barefoot: I do. Although, sometimes it is good not to have 20 years of experience and you bring in some fresh eyes to these things. I feel comfortable in saying as a baby boomer, that we need a generational turnover here. We need the elder senior members in the field to be learning. Somebody asked me the other day, we are talking 36 hours after the US election, but before the election, someone asked me my thoughts on agency heads in a new administration.

And I said, if I was the president of the United States, I would have a litmus test that every agency head should be tech forward, or at least not tech backwards. They should understand that tech is changing everything we are doing, and no matter what your age or experience, you need to be leaning forward. I think that we can attract talent into the regulatory industry. The knock on effect of regulatory work is that financial stuff sounds boring to some people and regulation sounds boring to nearly everyone.

But, good tech people are attracted to difficult problems and important problems. Financial regulation is loaded with difficult, challenging, and important problems. I think if we package these opportunities in that way and if we make it easier for people to kind of go in and out of government.

You and I know so many founders who reach a point in their career where they could go into government and spend a few years as long as the rules won't prevent them from keeping their gains that they've been able to win. But I think we need to (reform).

Millennials are the largest generation in the history of the world and they are all digital natives. They' are reaching a point where they're taking over more and more leadership roles. Both in the marketplace and in the workplace. It will naturally work its way through but we should do everything we can to accelerate it.

[00:10:36] Matteo Rizzi: It is too tempting. It has been one day that the US election news. Of course, I want to touch on an aspect that is factual. Two facts. One because everything that has happened, in two days, Bitcoin reached its peak. We wonder why. At the same time in Italy, my home country, they just decided to tax 42% on crypto profits which sort of dragged all the innovation around it. Not just on pure speculation but also tax on all the innovation that comes with digital asset solutions. This is also a brand new field. Right?

[00:11:24] Jo Ann Barefoot: That's so young.

[00:11:25] Matteo Rizzi: So how much extra work is required today? This is another gap we are talking about right here.

[00:11:31] Jo Ann Barefoot: Regulators aren't built to deal with mold breaking change and the best example is crypto and digital assets where it just has not fit neatly into the boxes that we had. It is so complex and there is so much potential for abuse. We have seen crime. We have seen scams in that field and yet so much potential for making the system work better in so many ways.

The United States' regulation of crypto has been very complex. We have a very complex financial regulatory system, and as you say, it could be with the new US election, we'll see some major changes in that. I hope they will be bipartisan. I hope we won't run into a situation where somehow there's a perception that digital assets are favored by one party and disfavored by the other.

Back to the importance of regulation, we need regulatory guardrails and frameworks that can unlock the upside potential of these kinds of innovations and still protect against big harm being done. And it is not simple. We are working our way through it.

[00:12:41] Matteo Rizzi: Today is the last day of the Singapore FinTech Festival. Do you wanna share one conversation that you had in these three days is probably going to last with you. If you want to highlights one or two.

I asked myself that question and I know are a great improviser because that's how great minds work. So I'm pretty sure that you can find something you want to share.

[00:13:03] Jo Ann Barefoot: Yeah. You did not warn me that you were gonna ask that. It is a hard question because there are so many. I wanna put in a pitch for people to come to this festival from around the world.

The fact that Singapore FinTech Festival was founded by a central bank of all things makes it really unique in the world, in addition to being the largest financial conference in the world, and I just wish even more people would come. Although, what do we have? Like 70,000 people here or something like that.

[00:13:30] Matteo Rizzi: Exactly.

[00:13:31] Jo Ann Barefoot: Having said that, I'll tell you the first thing that leaped to my mind when you asked the question. We had a wonderful session yesterday on payments and financial inclusion. It included both Rwanda, Ghana and we had Kwame Oppong from Ghana and they were talking about the opportunity to really drive financial inclusion through easier cross-border payments.

I'll tell you, they were both so passionate, thoughtful, deeply sophisticated in understanding the challenges but charismatic and they had infectious optimism that we can do so much better for people. In their case, they are trying to put together a bilateral approach and I know you've been very active in both places to figure out how do we work together.

How do we do the government part of this to enable the private sector to serve people better. To make cross border payments more affordable, more feasible, less friction filled and drive economic opportunity through that. I am gonna invite the two of them on my podcast show. See if I can get them to come on.

That was one of the ones that has stayed with me from the week. They are so exciting. There is so much going on in emerging markets. That is leading the way. Maybe financial regulators in emerging markets are a little more attuned to the upside opportunities if we really get the new technology driving change.

It is exciting to be here.

[00:15:11] Matteo Rizzi: In Africa, the big difference that I see compared with Western economies is that the line of the actual doers in central banks are in their early thirties.

[00:15:24] Jo Ann Barefoot: Yes. These are young people.

[00:15:26] Matteo Rizzi: Right.

[00:15:26] Jo Ann Barefoot: Brilliant young people.

[00:15:27] Matteo Rizzi: Isn't that incredible?

[00:15:28] Jo Ann Barefoot: Yeah.

[00:15:28] Matteo Rizzi: Which is very different because the line one and line two, in the Italian regulator. They are all older than me and I'm not exactly young. I am saying this because yesterday we were here, we have this format called Ecosystem Zooming, where we take a country and we explore FinTech in that particular landscape.

And we got the Central Bank of Namibia and there were two ladies in their thirties. And one was the innovation lead, FinTech lead in the central bank, that per se is already super interesting and the other was the payment head.

I am really hopeful that these young talents, as the discussion you were mentioning, will really progress.

[00:16:07] Jo Ann Barefoot: Yeah, I am too. I'm very optimistic. It's hard. You have to be patient and optimistic to work on changing regulatory things of any kind.

But, if you get the regulatory part right and the market and technology change is able to flower within the appropriate controls. You can change everything. We can solve problems that have been with us for as long as we have had money, right? And certainly, as long as we have had credit and as long as it we have had payment mechanisms.

There have always been problems of people being left out or victimised in different ways. You know we are never gonna have perfection but we can have so much better a system if we get all the pieces right and holistically working together.

[00:16:54] Matteo Rizzi: We are going to wrap up but I want to shout out. What is the title of the podcast?

[00:16:58] Jo Ann Barefoot: My podcast is called Barefoot Innovation. And I wanna have you on, Matteo.

[00:17:02] Matteo Rizzi: Thank you. The invite accepted but I saw it on LinkedIn. I remember the barefoot name because you have a super cool family name. I knew that Barefoot was in the title but I did not know the name is Barefoot Innovation.

[00:17:16] Jo Ann Barefoot: The Barefoot Innovation. Barefoot Innovation Channel.

[00:17:18] Matteo Rizzi: It's a very cool one. Congratulations even for the name.

[00:17:21] Jo Ann Barefoot: Thank you. We have a lot of fun with it.

[00:17:24] Matteo Rizzi: Jo Ann, it was indeed fun to have this podcast. Thank you for The CXO Conversation and the Singapore FinTech Festival for hosting this episode of Breaking Banks Europe. Thank you Jo Ann for being with us.

[00:17:37] Jo Ann Barefoot: Thank you for having me. It has been a pleasure.

[00:17:39] Matteo Rizzi: And it's a wrap.