Barefoot Innovation Podcast

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.