March 28, 2022

I began doing regulatory compliance work many decades ago. During that span of  time, regulatory requirements have grown and grown. Compliance expertise evolved into an entire profession. Bank compliance spending skyrocketed – today the industry spends hundreds of billions of dollars every year on compliance work. And yet, the outcomes achieved through all this effort are mixed at best. We know money laundering compliance produces a 99% failure rate in finding crime. We know many consumers are insufficiently protected from unfair practices. We know systemic bias persists, especially unintentionally.

There are many reasons we’re not doing better – too many to cover here. But one of the most critical arises from the compliance process itself. Banks have loaded more and more legal and regulatory activity into systems that were put in place thirty or forty years ago and that are, realistically, relics of the pre-digital age. Quite a bit of technology has been injected into them over time, but their design and underlying technologies are old and analog. They are too old, too slow, too expensive, and crucially, too ineffective to achieve the purposes of the regulations they are intended to implement.

My guest today is fixing that. He is Ian Hollowbread, the Global Innovation Lead for Safe and Compliant at ING Bank. Ian and I have known each other since the early days of regtech, and even fintech, as I visited him in London to see the innovation lab he built at ING, figuring out how to do compliance better, using the best technology.

In today’s show, Ian describes the vision that is driving ING’s new innovation group, Neo. He outlines its five value spaces, including the one he runs – safe and compliant. He describes how they are developing regtech solutions that meet both the needs of the bank and also an external market.

In our conversation, Ian explains why regtech is the future of compliance. He describes the first use cases that are emerging. And he talks about where regtech is, today, in its journey of adoption. That journey has been harder than a lot of people anticipated, and we talk about why – the obstacles that have hampered widespread update of these new solutions.  One of those is banks’ understandable hesitance about working with young startups. Ian and I both see signs that the market is turning the corner on that, as some regtech companies are now getting real traction in the market, and even exceeding billion dollar valuations. 

Another barrier has been the fact that most regtech firms have been offering point solutions, which has left many banks feeling that, even if the technology looks superior, it may not be worth the cost and trouble to integrate them into the institution’s complex and often aging systems.

That is where Ian comes in. He’s been working on that problem for several years through an initiative called Orchestrate, in which multiple regtechs connect with each other through the same open source platform, in order to make themselves interoperable. If a bank uses one of these firms, it can use the others, and their systems will easily work together. 

In my view, this kind of platform architecture is the future of compliance. We are going to turn the whole system ninety degrees, from today’s vertical tech stack siloes to horizontal platforms through which financial companies will easily plug in new solutions and unplug old ones. Ian uses the analogy of the App Store – a metaphor I too have used for years – to describe this coming world in which new software is written to interoperable standards, so that the industry can easily integrate better options and can continuously upgrade its technology, much as – excuse another Apple metaphor – an Iphone pushes out an IOS update.

You’ll be interested to hear Ian’s predictions for how the compliance world will look in 2030, as well as his advice to the industry.

Let me add a note of caution for banks and bank regulators:  Ian points out that fintech firms are adopting regtech faster than banks are. Banks have notoriously long sales cycles, making them unattractive markets for regtech firms in the short term. Most banks also struggle with the difficult, lengthy integration problems I mentioned before, plus most have some degree of concern that their regulators, and especially their field examiners, may frown upon them using new vendors. The growing fintech sector already has big technology advantages over banks in product features and user experience, as well as operating efficiency. If they now also gain advantages in compliance – in both compliance costs and compliance performance (which is what good regtech firms deliver) – it will really exacerbate the challenge facing the traditional industry. Remember, compliance costs are a substantial share of banks’ operating expense. The industry is going to need better technology to be competitive, and also to meet the rising bar of compliance performance that regulators will be setting, as regtech spreads and agencies see what really can be achieved with better compliance technology.

Ian tells us that his group’s work on safe and compliant is fundamentally about trust. He says, “Trust is becoming a tech problem.”  That is a thought worth pondering.

More about Ian

Ian is global Innovation lead for the value space Safe and Compliant, at ING Neo.  Its mission is to enhance compliance by digitalising regulatory processes, proactively protecting the financial system, and offering ING’s compliance and risk management capabilities as a service to other financial and non-financial companies

Ian joined ING in 2001 within Wholesale Banking and has covered a variety of roles supporting the delivery of significant front-to-back technology, operational and regulatory programs.  Since 2017, Ian has been leading the way in the future of compliance, from the formation of RegTech Labs London, to piloting cross functional collaborations bringing together employees, technology, regulators, advisors and peers to solve real business problems in a cost effective way. 

More for Our Listeners

We have many fascinating  shows coming up, including another great one on regtech with Deborah Young, CEO of the Regtech Association, based in Australia and global in scope. We’re going to have Queen Maxima of the Netherlands; Anne Boden, CEO of Starling Bank in the UK; Sigal Mandelker, former Treasury official and now at Ribbit Capital; Nicole Elam and Robert James of the National Bankers Association; returning guest Jeremy Allaire, CEO of Circle, with Tomicah Tillemann, on Web 3;  and Sunayna Tuteja, the first ever chief innovation officer of the Federal Reserve System. 

We at AIR are excited to be partnering with the Reserve Bank of India’s Innovation Hub on the Swanari TechSprint next month. This project supports our mission of fair finance by helping Indian women achieve financial independence, raise the profile of female-led enterprises and women in technology, and also helps expand the use of the TechSprint model to drive regulatory innovation by financial regulators and central banks. We are continuing to look for Indian nationals with a range of skills in technology, design, communications, policy, and financial services to participate on sprint teams. We also invite global observers to join the inspiration community. Registration closes next week – click to learn more

Don’t forget to follow AIR on LinkedIn and Twitter. Be sure to leave us a five-star rating on your favorite podcast platform. And please follow me personally on Twitter @JoAnnBarefoot.

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