October 18, 2019

I think this is my all-time favorite episode of Barefoot Innovation.

We have two guests. Nick Cook has been on the show twice before in his former role as head of regtech at the UK Financial Conduct Authority. He now leads the FCA’s newly-created division-level unit on innovation. I believe this model is unique in the world-- a financial regulatory agency establishing a high-level unit that, when staffed out, will have 200 people. Reporting to Nick are two groups. One is the group called Innovate, which includes the FCA’s famous regulatory sandbox. The second is the group on regtech and advanced analytics that Nick used to head, himself.

And my second guest is his successor in leading that regtech group -- Francesca Hopwood Road.

If you’re interested in regulatory innovation, today’s show may be the single most valuable source you can find on how to do it. Every minute is packed with both fresh information and rare insight about how regulators, themselves, will have to change to keep pace with changing technology.

In our conversation we explored two big topics. One is the creation of this new innovation division -- its mandate, how it’s structured, how it’s staffed, how it tackles problems, its plans and priorities, and especially the FCA’s hard-won learnings and advice about bringing a culture of innovation to a financial regulatory agency, despite the myriad constraints facing these leaders.

The second topic is this summer’s trans-Atlantic tech sprint on anti-money laundering. I told part of this extraordinary story in our 100th episode of Barefoot Innovation. For those who don’t know, the FCA invented the regulatory tech sprint several years ago. They got the idea of running hackathons and adapting the format to solving regulatory challenges. The heart of the concept is to bring together regulatory experts with software developers and let them organize themselves into small teams to work intensively for a short time, typically a few days. By the end, they have created actual software tools that can be demonstrated in a judged competition.

The one the FCA convened in July was its seventh and maybe most ambitious. They extended its reach by asking my new nonprofit, the Alliance for Innovative Regulation, or AIR, to run a parallel sprint in Washington, so that a large number of US regulators and other leaders could participate. As I explained in the 100th podcast, we achieved that goal. We had 65 US regulators involved during the course of four days, with much of the activity simulcast between London and Washington and with hundreds of people involved. We were fortunate in the US to have FDIC Chairman Jelena McWillliams as both the keynote speaker and a judge.

A quick note of follow up on the US sprint:  just this month we were able to take the five teams to meet with FinCEN Director Ken Blanco and his senior executives, as well as other agencies, to demonstrate both the solutions the teams developed and the power of the sprint format as a tool for innovation by regulators themselves. The issues they tackled ranged from facilitating secure sharing of data to detecting synthetic identities. As the teams demonstrated their solutions, they repeatedly expressed amazement at how much can be accomplished in regtech by joining up “tech” people and “reg” people for two-and-a-half days and merging their expertise. It’s a high-impact solution for one of the most urgent challenges facing regulators, namely to figure out how to accelerate their work to match the dizzying pace at which technology is evolving. Again, check out my 100th episode for more of that story.

In today’s podcast episode, Nick and Francesca tell the story of this same sprint from the London side. To get a feel for how unusual it was, watch this video they made for the occasion. They are excited that we collectively proved that the tech sprint format can scale to be multi-site and multi-country. And they are very excited about their results.

For this sprint, the FCA undertook a very specific, and very ambitious goal:  exploring privacy-enhancing technologies, or PET’s, as an AML strategy. This focus arose out of a sprint they held last year, on which we did a Barefoot Innovation episode. The main outcome of that gathering was that we will never reverse today’s 99% failure rate in catching financial crime until the “good guys” can share data with each other more widely, so that they can detect the big patterns of crime -- which are increasingly global. For this year’s sprint, the rallying cry was, “It takes a network to defeat a network.” However, we also know we’ll never be able to share widely until we can find ways to keep financial transaction information confidential and safe, since the industry and law enforcement must protect the privacy of the people who use the banking system. The two don’t go together -- sharing and privacy -- which is why the criminals are winning -- the UN says financial crime now exceeds $1.6 trillion a year.

Today, though, almost suddenly, we have a chance to solve that problem due to the emergence of the new PET’s. So that’s what the FCA tested in the London sprint.

I’ll leave it to Nick and Francesca to tell you how that worked. You’ll enjoy their insights on it, and on many other things. We talked about how to prevent “Phoenixing” and “cockroaching;”  about experimenting with regulatory chatbots; about building “predictive models of harm;” about the need to plan follow ups from tech sprints to capture what they build; and about their ideas for future tech sprints. One of these is to explore how to develop open regulatory code that can accelerate learning and sharing among regulators and with industry. Another is the potential for holding a sprint on how to develop synthetic data that all of us involved in regtech could safely use to test new ideas.

These ideas are nothing short of visionary. I’ve said many times that the FCA is the leading regulator in the world on innovation. This is the fourth show we’ve done with them, and we’re planning another as well, with Samantha Emery, who heads the redesigned Innovate group and sandbox. We recorded today’s call by phone, but even with the distance between London and Washington, you can hear the power of this work in how they talk -- the unusual words they use and the tone of their voices. These leaders are hitting new heights in figuring out how regulators are going to keep up with the technology transformation underway in financial services. We should all listen and learn.

More on Nick:

Nick is the first Director of the newly created Innovation division at the FCA. He is accountable for leading the FCA’s RegTech initiatives, its data and analytics strategy, machine learning endeavours, and Innovate activities (including regulatory sandbox, Global Financial Innovation Network, Green FinTech challenge, and direct support). Nick represents the FCA on the European Securities and Markets Authority’s (ESMA) Financial Innovation Standing Committee and is an advisor to the RegTech for Regulators Accelerator Programme (R2A). Nick joined the Financial Services Authority (the FCA’s predecessor) in 2009, initially in its Enforcement and Market Oversight Division. Prior to joining the regulator, Nick qualified as a chartered accountant at KPMG Forensic.

More on Francesca:

Francesca leads the FCA’s RegTech and Advanced Analytics function responsible for developing and embedding data science, machine learning and artificial intelligence tools and capability across the organisation. She also runs the FCA’s RegTech activities, including the FCA’s TechSprint events, the first of their kind convened by a financial regulator. Since joining the regulator in 2010 she has led a number of strategic transformation programmes. Prior to joining she worked in the third sector and private sector using data and intelligence to identify and mitigate harm for consumers.

Special announcements:

Before we hear them, two quick notes: The FDIC has extended the deadline for applying to become its Chief Innovation Officer, until October 31. This position is unique in the United States and has been designed by Chairman McWillliams to have transformational impact — rapidly — on how banks are supervised. She wants a tech person. It’s important work and believe me, it’s interesting.

Second, I’m recruiting for an Executive Assistant to work with us at AIR. Our work, too, is exciting and interesting. The information is here.

Also we will be officially launching AIR this month at Money 2020, so watch for upcoming information and events!

More for our Listeners

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We have great episodes coming up. We’ll talk with Vinny Lingham, co-founder and CEO of Civic — an identity protection and management startup. We will have a show with Greta Bull, who leads C-GAP for the World Bank. And we recorded a show at the recent University of Michigan conference on the Future of the Central Bank. We sat down with the two people leading work on this for the Gates Foundation — Michael Barr and Adrienne Harris. We also have two special shows coming up with US regulatory agency and one member of Congress.

I very much enjoyed speaking at two FFIEC conferences this fall — I always love speaking to regulators, who have the hardest job in navigating the landscape we talk about on the show.

And I’ll be at many industry gatherings in the coming weeks. Remember, if you’re interested in booking me to speak to your group, contact

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