How regulators can drive innovation

  • By Christine St Anne

Partnerships with regulators including regulatory alignment on a global level will be key to driving innovation in banking.

Speaking to RFi Group as part of the Global Digital Banker podcast series, Deutsche Bank chief digital officer Thomas Nielsen said it was important that the industry embrace regulation.

“A lot of financial institutions hide behind regulation or see it has too onerous to deal with. I actually see it as a competitive advantage,” Nielsen said.

“At Deutsche Bank, we know how to do business with other businesses in many countries around the world, this also includes experience in partnering with regulators,” he said.

Here, he highlights an example under the Open Banking framework.

“If we look at Open Banking, we know the challenge is around data privacy and understanding how this data flows across the different geographical boundaries.

“As long as the rules vary across jurisdictions, technological solutions will be constrained by local boundaries, diluting their potential to transform the industry. If we allow this to happen, we are missing a trick.

“We can’t solve this alone. Therefore, it is important to start a dialogue with other regulators and other parties.”

Nielsen recently authored a whitepaper on this topic which explored technology innovations such as blockchain and what it would mean for regulators.

For example, the European Union’s General Data Protection Regulation (GDPR), enshrines the “right to be forgotten”, but could “potentially hinder the opportunities derived from the immutability of blockchain”.

Meanwhile, Nielsen adds the application of AI brings new complexities to the use of data by banks.

“Legislation addressing the fact that bank processes need no longer be human-driven would help banks to securely and ethically explore the power of AI,” he said.

He believes that regulatory alignment on a global level would be crucial in order to support the development of innovative technologies for global businesses – key in the context of open data as highlighted by Nielsen earlier.

However, he stops short of calling for a single global standard for regulation.

The global sandbox

“We have to be pragmatic. The realistic goal here is attaining a threshold level of alignment across jurisdictions – one that leaves a degree of room for differing standards where complete agreement is unrealistic, but where a broadly similar approach across all jurisdictions would unleash the benefits of global solutions.”

Global sandboxes are one solution – as pushed by the Global Financial Innovation Network; a collaboration between the UK’s Financial Conduct Authority and 11 other financial regulators and related organisations.

Such an approach is one step that could facilitate the move towards globally aligned regulatory solutions.

“These provide a safe environment for regulators and the industry to identify, learn and uncover the regulatory gaps and barriers at a global level. Given the fast-moving nature of technology and its applications, industry practices should be at the forefront of such collaborative solutions,” Nielsen said.

“At Deutsche Bank, we see it as a competitive advantage to engage with the regulator. It’s part of our obligation to help drive the broader agenda on issues like the GDPR which could be pushed to other parts of the world including Asia and the US.

“We are on the cusp of major change. And forward-thinking regulation stands to be a major catalyst for a thriving and innovative banking industry.”

Listen to the full interview with Deutsche Bank’s chief digital officer Thomas Nielsen here.