Regulation is always slower than innovation. Just look at GDPR – every last person had uploaded their most intimate details into Facebook’s greedy coffers before governments woke up and wondered whether anyone was monitoring how all this data was being used. The leviathan chugged into life, and several years later, out popped an enormous legislative package that soon began smothering the wayward innovators – both the good bits and the bad.
It’s the same story in finance. No sooner has someone managed to get a good idea off the ground – like P2P lending, for example – than PC Plod emerges from beneath his helmet and sets about hitting anything that looks like change with his truncheon.
Now, obviously there’s a strong case for regulation in finance – nobody wants a lawless wild west in place of Canary Wharf – but the problem comes when regulators get so hung up on behavioural codes that they forget the role of free thinking in good business.
In other words, financial regulation needs to be about the spirit of the law, not the letter .
The tighter the regulation, the less room there is for entrepreneurs to swing their ideas about. Sure, it provides safety of one kind – no-one ever got into a car crash while strapped to a table – but by lopping off new ideas as soon as they start to grow, overbearing regulation actually dooms the industry to exist in a self-referential echo-chamber, forever repeating the same mistakes. Customers don’t get the chance to choose between the old and the new.
P2P has faced this kind of ham-fisted oversight throughout its life. First the idea was born, tested and launched; then it built up a good head of steam, and started to help people get a better return on their money without losing security; and then the regulators snapped round and began removing investors’ ability to choose the services they wanted from P2P.
What happens then? They either have to go back to the banks – who just aren’t interested in offering decent returns these days – or massively up their risk profile. It’s a cruel irony that by clamping down on legitimate innovation, the regulator pushes the people it’s trying to protect toward the jaws of the sharks.
Here’s the bottom line: innovation is good for everyone. For businesses, for consumers, for investors, for borrowers. It sweeps out the dead leaves and opens the windows to let the fresh air in. But it takes time, and it takes space.
Regulators have to leave room for fresh ways of doing things in their legislation. That doesn’t mean turning a blind eye to corruption or deception. It means guiding companies towards best practice and consumer protection. It means trusting entrepreneurs to build good businesses, rather than painting them all with the ‘dastardly fat cat’ brush. And it means not detailing their every move down to the last dotted I and crossed T.
Britain’s fintech entrepreneurs have plenty of fight in them. The question is: will the regulator give them gloves or a straightjacket?