2022 COMMENTS & CONTRIBUTIONS | Mind the Gap

Recent years have seen a steady encroachment of new technologies in the financial services space, leading many to re-think where the ‘regulatory perimeter’ lies. Last summer, the UK’s FCA announced that it was “not capable” of properly supervising crypto-marketplace Binance.1“The problem here is not just that regulation needs to catch up with new technology,” the editorial board of the Financial Times offered. “It is that new technology may be able to circumvent regulation altogether.”2New crypto-exchanges, neo-banks, and other fintech innovators may seek to disrupt or disintermediate traditional financial institutions, but they cannot function fully without some level of engagement with those same firms, where regulatory oversight responsibilities are well established.3As such, regulators cannot avoid being drawn in to new and unfamiliar terrain. “Finance is about trust, ultimately,” the SEC’s Gary Gensler commented during an August 2021 interview.4It is the regulators’ job to assure that such trust — and trustworthiness — is seen.

This is made all the more challenging in an era of ‘DeFi’ — decentralized finance — which has sparked fears around anti-money laundering (AML) and Know-Your-Customer (KYC) capabilities.5 Such concerns are steadily increasing.6“Fintech is not merely turbo-charging financial trading and expanding the financial universe,” wrote Saule Omorova, nominated unsuccessfully to the helm of the US Office of the Comptroller of the Currency by President Biden, “It is also fundamentally reshaping our collective understanding of the financial system as little more than a particular form of applied information technology and computer science.” Her remarks, in a paper entitled “Technology v. Technocracy: Fintech as a Regulatory Challenge,”7appeared under the sub-header: “The Trust/Power Challenge.”