Technology innovations disrupt business models and regulation. The public policies behind the laws usually remain the same, however. Examples:
- Consumer protection and safety
- Fair taxation
- Consistent application of the law
- A level playing field for start-ups and mature businesses alike
- Stable financial system
You get the point.
New technology can be non-compliant with regulation, but still compliant with the public policy. A good example are some cloud service providers (CSPs) that provide services to financial institutions. Financial regulators place a heavy emphasis on securing customer data- an emphasis I agree with. Some of the requirements in the FFIEC IT Examination Handbook are so specific to on premise computing systems, that it’s unlikely any cloud service provider could comply. Some CSPs provide an equivalent level of protection, though they do not always meet the letter of the regulation.
Where this occurs, innovators and regulators need to work together to make sure that appropriate technology is not barred by regulation. Regulators can and do take their time in evaluating new technology. That can be frustrating to start-ups. Twelve months can be the difference between life and death. The OCC will definitely still exist in twelve months so the sense of urgency isn’t always there. Financial regulators have to worry about the stability of the entire financial system and need to make sure they think through all the implications of innovations. If you think otherwise, I have three letters for you C-D-O.
Attacking the regulator doesn’t generally work, though Uber’s guerrilla approach in Seattle appeared to have work. The city council’s action in that case seemed more protectionist (catering to the taxi associations) that in the spirit of protecting the public good.
Technical innovations often have unintended consequences and their potential harm is sometimes overstated.
In the end, whether the business is a start-up or a mature company, neither is usually on the side of innovation, but instead on the side of increasing their revenue.
From the NYT article cited above:
On Jan. 31, there were 19,522 listings for New York City properties on Airbnb from 15,677 hosts, according to data the attorney general submitted to the court. But nearly a third of the listings were from only 12 percent of the hosts.
One Airbnb landlord had 127 listings in Manhattan on a single weekend last fall. Sixteen other landlords had at least 15 listings each.
Attempts at old-fashioned regulation are being cheered on by the taxi and hotel industries, who feel their livelihood is being threatened. Affordable-housing advocates are now joining the fray, saying companies like Airbnb are worsening a crisis.
In the end, everyone usually looks out only for themselves. I guess it’s a good thing we have regulators to look out for the public.