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Regtech Pioneer Believes Adaption Is Accelerating

By Justin Dullum

Jo Ann Barefoot has been doing a lot of globetrotting lately. Since being named the first female Deputy Comptroller of the Currency in 1978, Barefoot launched a career in the private sector and describes herself as a “serial entrepreneur.” She is currently CEO of Barefoot Innovation Group, something of a think tank for financial technology, regulatory reform and the future of banking. She is a co-founder of Hummingbird Regtech (industry shorthand for regulation technology), and is a senior fellow emerita at Harvard University’s John F. Kennedy School of Government’s Center for Business & Government.

She’s recently taken her ideas about regtech — her current main focus — on tour. Acting at times as a moderator or panelist, Barefoot’s voice has been heard by financiers from Las Vegas to London to Singapore to Liechtenstein. And her message is clear: Technology will make regulation better and easier for all banks, and community banks may benefit the most.

But before catching up to her recent tour, back up to the tail end of 2017. Barefoot was a panelist at the American Bankers Association’s Financial Crimes Enforcement Conference. She told those in attendance that she and her peers working in regtech had reached a consensus at the time that regulators were ready to allow innovation to move forward.

“And they are going to have to move forward,” Barefoot said. “It was a bit of a misnomer that the industry thought we weren’t going to be able to change things because of regulators being too conservative.”

Barefoot said there is a stereotype of new technology being the domain of the big banks and small banks have trouble competing. She believes this has now changed. “If you think about the nature of moving from analogue to digital systems, which is what regtech is about, the whole thing is driving down costs and gaining power,” Barefoot said.

Jo Ann Barefoot

Getting there would not be easy for community banks. “But the basic structure of what is going to happen is that regulatory burden can come down because regulators are going to ask for information in ways that are easy to provide instead of hard,” Barefoot said.

A year and a half later, have community banks “gotten there” in terms of regtech?

Barefoot recently told a number of audiences there remains a ways to go, but the predictions about regulators allowing space for regtech to flourish have come true, and regulators have been wise about the speed at which innovation is introduced to the process.

“I think the regulators have the hardest job in this whole ecosystem because they have to get it right,” Barefoot said in conversation on her podcast with Michael von Liechtenstein, otherwise known as Prince Michael of Liechtenstein. “They shouldn’t allow harm to come into the system through innovation, but they shouldn’t block innovation. It’s a tightrope.”

Barefoot told von Liechtenstein more regulators are realizing too much caution will have an unwanted effect. “Because, and I’m a former bank regulator, the classic thought process is ‘if I’m not sure what to do, wait and see’. And with the technology changing so fast today, it’s dangerous to hold still.”

Barefoot’s direct contribution to the innovation landscape, Hummingbird Regtech, is poised to expand along with regulators allowing for more experimentation and increasing acceptance of the controlled “sandbox” concept of research and development of digital financial tools. Specifically, Hummingbird is focused on anti-money laundering. Yes, even community banks can be manipulated to unwittingly be part of the shockingly massive, global phenomenon.

Hummingbird cites United Nations estimates that illegal activities annually fuel 2 to 5 percent of the global GDP. Financial institutions throw billions at the problem of money laundering with little to show for it. And, with cryptocurrency on the rise, so is the crime of money laundering. “We started with anti-money laundering because it was the most broken piece of compliance, “ Barefoot told Zach Anderson Pettet on his podcast, For Fintech’s Sake.

Barefoot works for Hummingbird out of Washington D.C., and focuses on regulation. The other company founders, who mainly came from Square, the mobile payments company, handle the tech side from San Francisco. She said her company’s “secret sauce” is it can pull on equal levels of expertise from both the tech and regulatory perspective.

Hummingbird Regtech recently raised $3 million in investment capital and its anti-money laundering technology is now available.

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