March 18, 2020

First, a message for our listeners.

I’m recording this episode in mid-March, as the Coronavirus pandemic disrupts life all over the world, bringing upheaval to our health, our economies, and our social connections. We will be working to expand our podcast as a channel that builds dialogue and community for our listeners and guests. In addition, our nonprofit, the Alliance for Innovative Regulation, is exploring other ways to maintain a rich flow of news and ideas, despite our being unable to assemble, to touch each other, and to see each other in person. We all need to be able to continue to hear each others’ voices, in all the kinds of media we have available, in the months ahead. We will work on this. And we will hope and pray for health and security for all of you and for the world we share.

Today’s episode is an unusual one. It arose from a conversation I had over lunch several years ago with an official who was leading an innovation program at one of the US financial regulatory agencies. Over our meal, he began telling me that some of their initiatives were being blocked by a law called the Anti-Deficiency Act. His agency wanted to try out some high-tech new tools, just as regulators do in other parts of the world -- like the Bank of England’s Fintech Accelerator or the tests run by the Monetary Authority of Singapore. With technology changing so fast, today’s regulators need the ability to “test drive” newly-emerging tools and try out options, as the private sector does. But in the US, my friend said, pilot testing like this is often blocked by a Catch 22 situation. One the one hand, regulators typically can’t buy technology for small-scale testing, because their agencies are subject to procurement rules that were designed for major IT purchases -- which typically involve competitive bidding and can consume months or even years to process. On the other hand, agencies also can’t use new tech that is offered to them for free, because that could be construed as accepting a gift, which is prohibited by the Anti-Deficiency Act.

I’m a former bank regulator, but I had never heard of the Anti-deficiency Act. Congress passed it in the late 1800’s, and for a good reason -- to keep the federal government from spending money that hadn’t been appropriated. But here it is, today, impeding innovation by our financial regulators as they try to adapt their agencies to the Digital Age.

That lunch conversation led to a podcast episode with Daniel Gorfine, who at the time was the head of LabCFTC, and also to one with former CFTC Chairman Christopher Giancarlo, exploring these challenges. It also left me continuing to think about how the government, itself, innovates. I began to realize that I was hearing similar stories from other regulators, sometimes about the same law, and sometimes about others. All the US federal financial agencies now have innovation initiatives in some form, and it gradually dawned on me that many of them were finding it difficult to innovate because of rules, laws, and protocols, dating from an earlier age, that complicate how government operates.I want to emphasize that all of these rules have worthy purposes that were important when they were put in place, and are still important today. They aim to assure transparency, for instance, and to prevent conflicts of interest. However, technology change is in the process of transforming how our whole society operates, including financial services, and including financial regulation. The exponential pace of technological change is going to require the regulatory agencies be able to, in effect, speed up. They will need to detect risks faster, evaluate challenges faster, gather input faster, and implement change faster. Aging rules and protocols that were written back when business was done on paper, and that slow everything down, should be on the table for reevaluation. We should ask, how can we maintain important standards and protections, while enabling innovation too.

As many listeners know, my work has been supported in recent years by the Omidyar Network and its affiliate, Flourish Ventures, which is dedicated to advancing financial inclusion through new technology. Working with Pierre Omidyar’s nonprofit foundation, we were able to enlist the Buckley law firm in Washington DC, in undertaking a pro bono project to evaluate these legal obstacles to innovation by the US financial regulatory agencies. Jerry Buckley and his team conducted off-the-record interviews with a range of agency officials.

The resulting report is Financial Regulators’ Dilemma: Administrative and Regulatory Hurdles to Innovation. All the issues it cites were raised by the regulators themselves. Some agencies emphasized certain impediments more than others, and not all issues were raised by every agency -- although many were. But every agency expressed concerns about these challenges.

In this episode, I talk with the authors of the report, Jerry Buckley and Sasha Leonhart of the Buckley firm, who explain how they did the project and what they learned. Jerry, Sasha and I also conducted a briefing on Capitol Hill last month, which was very well-attended and has engendered a great deal of constructive feedback and discussion. I want to thank the Buckley firm for undertaking all this work on a pro bono basis. I also want to mention that the report will be published in the coming weeks by the Business and Finance Law Review at George Washington University School of Law.

The report is also a focus of a recent article by Steve Harras in GQ Rollcall magazine that profiles my nonprofit organization, the Alliance for Innovative Regulation. The article quotes our AIR board member, former Comptroller of the Currency Thomas Curry, saying that these procedural obstacles routinely make regulators “throw up our hands” in frustration.  In explaining why, today’s show may dig a bit into the US legal weeds, but for those interested in regulatory modernization, it opens a window onto challenges that are not usually visible. These are real obstacles facing the leaders of the US regulatory bodies as they work to bring technology innovation into the core of how they work.

More on Jerry Buckley

Described by Chambers as “a recognized dean of the consumer finance bar,” Jerry Buckley has, over a 40 year career, established himself as an acknowledged leader in financial services law. A founding partner of Buckley LLP, Mr. Buckley assists his clients — banks, mortgage companies, credit card issuers, insurance companies, broker dealers, fintech lenders, investment banks, and private equity investors — with business formations and acquisitions, risk management, and enforcement matters involving federal and state regulators. He has extensive experience with electronic signatures and serves as General Counsel of the Electronic Signatures and Records Association. He is co-author of The Law of Electronic Signatures and Records.

Prior to entering private practice, Mr. Buckley served as Minority Staff Director of the U.S. Senate Banking Committee, where he participated in drafting most of the laws that serve as the foundation for today’s consumer finance law ─ the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act, the Foreign Corrupt Practices Act, the Truth in Lending Act amendments, the Equal Credit Opportunity Act, the Community Reinvestment Act, and the Home Mortgage Disclosure Act.

For many years, Mr. Buckley has been a leading advocate for updating and modernizing the nearly 50-year-old regulatory regime that is slowing down financial innovation.  Several years ago he wrote a widely read article in the American Banker urging development of “dynamic disclosures,” to offer far more useful information to consumers than is provided under the cumbersome and voluminous static disclosures currently provided.  He recently took the lead in a pro bono project producing a white paper on “Regulatory Hurdles to Fintech Innovation,” based on interviews with innovation leaders in each of the federal financial regulatory agencies.

Mr. Buckley serves as an Adjunct Associate Professor of Law at the American University Washington College of Law. The recipient of numerous awards and honors, he received the Senator William Proxmire Lifetime Achievement Award from the American College of Consumer Financial Services Lawyers in 2015.

More on Sasha Leonhardt

Sasha Leonhardt is Counsel in the Washington, D.C., office of Buckley LLP. Mr. Leonhardt represents financial services industry clients in a wide range of enforcement, litigation, and regulatory matters. Mr. Leonhardt assists clients in resolving government investigations and enforcement actions before a wide variety of federal and state agencies, including the United States Department of Justice, the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and state attorneys general.

Mr. Leonhardt also has substantial experience advising clients on the Servicemembers Civil Relief Act (SCRA), Military Lending Act (MLA), Consumer Financial Protection Act (CFPA), Truth in Lending Act (TILA), Real Estate Settlement Procedures Act (RESPA), Fair Credit Reporting Act (FCRA), Equal Credit Opportunity Act (ECOA), Fair Housing Act (FHA), and Fair Debt Collection Practices Act (FDCPA). In addition, Mr. Leonhardt advises companies, non-profits, and industry associations with consumer privacy issues arising from the Gramm-Leach-Bliley Act (GLBA) and Regulation P, the Fair Credit Reporting Act (FCRA) and its Affiliate Marketing Rule, and state and federal laws that address data privacy and information security.

In addition to representing clients, Mr. Leonhardt has published numerous articles on various aspects of consumer financial services law and practice, including data privacy, class action litigation, white collar litigation, whistleblower lawsuits, and recent trends in regulation and enforcement.  Mr. Leonhardt also maintains an active pro bono practice and serves as a member of the Legal Counsel for the Elderly’s Young Lawyers Alliance. A frequent speaker on a variety of legal topics, Mr. Leonhardt has taught at Duke University School of Law and American University Washington College of Law, and is currently a Professorial Lecturer in Law at the George Washington University Law School.

Mr. Leonhardt received his J.D. from Duke University School of Law (cum laude) in 2010. During law school, he served as Senior Executive Editor of the Duke Journal of Comparative and International Law and as a member of the Duke Law and Technology Review. Mr. Leonhardt received his A.B. from Princeton University in 2005.

More for our Listeners

I hope you found today’s show as thought-provoking as I did. Please subscribe to Barefoot Innovation for more information, and come to for information about AIR we’ll be launching our new website soon. And follow me on Twitter and LinkedIn.

As I said at the start of the show, we are going to be innovating about how to make Barefoot Innovation as valuable to you as we can, as we all go through the coming weeks and months of curtailed travel and meetings. We have terrific shows already in the queue. We’ll talk with David Reiling, CEO of Sunrise Banks; with Ellison Anne Williams of Enveil; and with Albert Forkner, State Banking Commissioner of Wyoming. We’ll also talk with Sarah Willis of the Metlife Foundation and Allie Burns, CEO of the nonprofit Village Capital. And we’ll have a conversation with Shamir Karkal and Angela Wilson of Sila.

This is the point in the show where I usually list upcoming conferences where I’ll be speaking. Most of them have cancelled, although LendIt Fintech USA, May 13-14 in New York, is still assessing the situation. We have been talking with the organizers of some of the cancelled events about doing special podcast episodes to fill some of the gap they’re leaving —  to share key themes and major speakers. So watch this space for new developments.

Meanwhile, I hope everyone is safe and healthy. Let’s all keep innovating together.

Get involved

Stay informed by joining our mailing list