Federal Reserve Governor Michelle Bowman suggested a methodology for regulators to get comfortable with innovation during a speech yesterday. Most innovations come with both benefits and risks. The key is for regulators to expand their understanding by getting to grips with new technology, business models and the companies introducing the innovations to the banking sector. They also need to understand the ‘why’, the problem that the innovation aims to solve. She acknowledged that sometimes regulators “reflexively resist these changes”.
It’s up to industry to educate regulators, but at the same time regulators need to be willing to listen.
“We must fight the temptation to say “no” and resist new technology, and instead focus on solutions — how can we mitigate the risk of new technology? What benefits will technology bring to the financial system? How can we provide clear regulatory expectations?” said Governor Bowman.
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