Regulation for Financial Inclusion – Ivo Jeník [Season 3 | Episode #19]

Jens Seidl 00:00:34  Welcome to another episode of The P.I.T. Exchange, Payments, Innovation and Technology. My name is Jens Seidl, and I’m your host for today. And I’m here with, well, virtually here with Ivo. Yannick. Ivo, welcome.

Ivo Jenik 00:00:46  Thank you very much for having me.

Jens Seidl 00:00:49  Pleasure. Ivo, as usual with my episodes, I’d like to start with three random personal questions. Keep it nice and easy. first one on a flight. Aisle or window.

Ivo Jenik 00:01:02  A window.

Jens Seidl 00:01:03  Okay. You like to watch what’s happening out there?

Ivo Jenik 00:01:07  I like to.

Ivo Jenik 00:01:08  Lay my head against the window sometimes, and I don’t mind to step over the other passenger.

Ivo Jenik 00:01:15  I don’t feel shy about that, so I prefer the window seat. Also, I’m very worried if I sit in the aisle that I would be hit by the little strollers or cars that the flight attendants push to my knee or to my elbow so the window is safer.

Jens Seidl 00:01:31  All right. Fair enough. Yes. then the best sandwich.

Ivo Jenik 00:01:41  it definitely has avocado. It’s most likely vegetarian. I don’t have any specific sandwich, but I have survived many years on bread with avocado and some vegetables, so that’s a safe option for me wherever I go.

Jens Seidl 00:01:57  Okay. Nice. And, favorite holiday? Either the type of holiday like mountains or sea or even a destination.

Ivo Jenik 00:02:06  I may surprise you, but my favorite type of holiday is short and dynamic. me and my wife with the kids. We just recently went for a long and long means a week long vacations at the beautiful beach, and by the end of the week, we’re really looking forward to being back home and doing something different just than just relaxing on the beach.

Ivo Jenik 00:02:28  So it’s there. It should be pretty active and I really like mountains. I like backcountry skiing or snowboarding to be precise. So mountains hiking, that’s my favorite type.

Jens Seidl 00:02:41  Yeah, I can actually relate to the not wanting to be static in one place. Comment. Road trips for me are some of the best holidays because you’re always moving. You’re seeing two different things. Staying a week on a beach. I think on day three I already get itchy. So I kind of.

Ivo Jenik 00:02:57  Exactly. Yes.

Jens Seidl 00:02:58  Yes, exactly. All right. Great. Well, with that out of the way, what do you want? To introduce yourself. Tell us a little bit about what you do and and, where you come from.

Ivo Jenik 00:03:10  with pleasure. So my name is Ivo Janik. I was born in Czech Republic, so that’s where I’m originally from. And I have worked in financial sector regulation for about 20 years in a very different roles, first in a private sector as a compliance officer and in-house counsel in a investment company.

Ivo Jenik 00:03:31  Then I worked also at the Financial Ombudsman, which I assume the European listeners would know what that is. It’s basically an alternative dispute resolution for customer disputes, where I was responsible primarily for retail investment disputes, but also payments disputes. And it was a lot of interesting work because we have seen some of the early payments and credit cards and payment cards. Fraud that we investigated was a lot of interesting learning. And then I joined the world Bank in 2013 and then 2014, specifically in the financial, Consumer Protection and Financial Inclusion team. And basically since then, I have been working at the intersection of financial sector regulation, innovation and financial inclusion. And I think we will talk about that intersection a little bit more later. what it means in practical terms. I spent recent years looking into how specific innovations may or may not help to advance financial inclusion, and what policymakers and financial sector regulators can do about it to enable innovation that is beneficial to financial inclusion. And maybe the last thing to say is that I am a lawyer by by background.

Ivo Jenik 00:04:47  But I work with a lot of economists and I really enjoy that kind of, intersection of the two very different worlds that really meet in the financial sector regulation space.

Jens Seidl 00:04:58  Hey, brilliant. Excellent. Thank you for that background. And, we we had obviously a conversation before we decided to record this podcast, and we found that there’s so much interesting stuff that you’re working on that we’re going to split this into two episodes. So today we’re going to talk about regulation first and foremost. And in the second episode we’re going to talk a bit more about open finance. But let’s stick with regulation for today. And and maybe before we jump in, you mentioned that innovation and financial inclusion or innovation enabling financial inclusion that then needs regulators to adapt to that. Shall we talk a little bit about first, what kind of innovations are we actually talking about? What are these new things that are potentially helping with financial inclusion?

Ivo Jenik 00:05:41  Yes. And it’s a really big topic because it has many different angles and it’s very dynamic as we see more and more innovation and more and more new technology reaching the financial markets, the mainstream ones, but also the financial inclusion specific ones.

Ivo Jenik 00:05:57  And I should start. Maybe if you allow just quantifying the problem for us here, because maybe some listeners may not be aware, but there are currently 1.3 billion adults who do not have access to formal financial services and many, many more of them who have limited access to financial services or access to financial services that are not really beneficial to them. And that’s only individuals. And then we have hundreds of millions of micro entrepreneurs and small enterprises who have really limited access to financial services, notably a business credit. So financial inclusion is a sizable problem. And I would say it’s also an evidence that the current financial system is not working very well because it’s not serving large portions of the society. So that’s why it is a problem and that’s why we’re working on it. it’s becoming even more important problem because as the world is heading into a more of digital interactions and digital economy and digital business, financial inclusion and access to financial services is effectively the gateway into the digital world. And if you don’t have a bank account, if you don’t have access to digital credit, insurance, savings and so on, it’s very hard to navigate the digital economy.

Ivo Jenik 00:07:15  sometimes it’s actually virtually impossible. So I think that really emphasizes the need to address financial inclusion. Now, where it comes to innovation is our long term history or knowledge of innovation helping to bring more people into formal financial services? I would almost say that we’ve gone through three distinct waves where innovation and technology created a breakthrough in financial inclusion, first with microfinance. Of course, today to say microfinance is an innovation sounds really strange, but let’s not forget that a couple of decades ago, it was an innovative idea that people can actually take couple dollar loans and thrive and thrive on them, or build micro businesses on them. So that’s the first wave where financial institutions, for the first time, perhaps recognize that low income customers can be a viable customer segment. Then the second wave of innovation came with what sometimes is called branch banking or agent banking. We’ve seen it in Latin America, we’ve seen it in Asia. And of course, it became famous with mobile money in Africa, where this time the financial institutions recognize that you don’t need to serve customers with brick and mortar branches.

Ivo Jenik 00:08:36  You can have alternative distribution channels. And that almost seamlessly blended into the third wave of what’s called digital finance, Where? Mobile phone. The feature phone, but also the smartphone, effectively became the interface between the financial institution and the customer, helping to overcome some of the most persistent barriers in financial inclusion, notably the long distances from rural areas to the city centres where usually financial institutions are. So all of these could serve as evidence, I would say, irrefutable evidence that innovation is really important for financial inclusion. And those three waves are also big reasons behind why we now have only in quotes 1.3 billion adults, because a decade ago it was 1 billion more, right? So there’s been a significant success. And I think today we’re living through the fourth wave of innovation, which is very hard to blend. I think somebody will eventually blend it with a really nice term that everybody will use. you know, I’ve heard different, different terms like modular finance and others. But, the key is that basically the the current wave is the wave where financial services are blended into a lot of other financial and non-financial activities.

Ivo Jenik 00:10:01  So if I simplify it, if having access to formal financial services was beneficial two decades ago is really necessary today. That’s why I think we cannot afford to ignore financial inclusion. We cannot ignore how innovation helps to advance financial inclusion. And I gave some some examples of what innovation we used to talk about and used to look at. Today we’re obviously looking as many other, many others on artificial intelligence, decentralized finance, tokenization and so forth, because all of these potentially may have positive impact on financial inclusion.

Jens Seidl 00:10:37  Okay. Can you just check on one thing then? And you said if I understood you correctly, that digital inclusion is now also driven by financial inclusion, so the desire to be financially included actually helps with digital inclusion. And we often have this chicken and egg kind of conversation. What needs to come first. So so you’re proposing that it is financial inclusion and offering these services through digital channels, which is making sure that people will actually learn how to use the digital tools in the right way.

Ivo Jenik 00:11:11  Thank you for the question, because it’s very important to make that that that distinction.

Ivo Jenik 00:11:15  So of course one can be on social media or, you know, using online platforms without the access to formal financial services. It’s possible, however, once you start to be economically active or using services or offering services for which you need to pay or for which you receive money online, it’s extremely complicated if you don’t have access to digital financial services, notably payments. Because, you know, I can use an example of I’m not going to name any specific brand, but you can have a marketplace where you can sell your products, and it could be that you just, you know, sell your furniture because you no longer need it, or it’s your actually your livelihood that you sell certain products, services or other things online because that’s how you reach your customers. Now, if your customers still pay you in cash because you don’t have an account, or they don’t have an account, that really limits the scope of your business in terms of the geographical reach, the customer reach, the scale of your business.

Ivo Jenik 00:12:18  And I think we are increasingly seeing that more and more entrepreneurs find opportunities online, and for that, they have to have access to formal financial services. That’s one. And to me, the most important point, but I want to mention another one, which is very close to my heart because I have spent some time working on anti-money laundering and counter-terrorist financing measures. And so the other point relates to the identity, in the system, which requires a certain amount of trust because people do not interact on a personal basis, having, identity established in a way that can be trusted by third party providers, including financial services, is really essential. And so here again, there are different ways how that identity can be, constituted or established digitally. But financial services have a very good expertise in doing that, in identifying and verifying identity. They do it on a daily basis as they onboard customers and as they serve customers. So that’s again where financial services can be the enabling layer and gateway that I go through. And I enter the digital environment already identified in a way that can be trusted by people who don’t really know me.

Jens Seidl 00:13:33  Yeah, that is so interesting because we also hear the flip side of that argument, saying that initiatives like the digital public infrastructure and implementing digital IDs in a country can then actually unlock the financial inclusion, because it will make sure that it’s actually possible to identify people. I mean, one of the classics is people not having an address, right? And therefore struggling to open a bank account, these kind of things. So it I don’t know. Maybe the truth is that they need to go hand in hand. And it’s not one following the other, but they need to almost like step by step. Keep up with each other. Is that maybe a fair way to to describe it?

Ivo Jenik 00:14:15  I think it’s a really good way to describe it, because the interest in the digital public infrastructure is partially driven by the same logic. You need to have that basic layer so that people can participate in the digital environment. And by the way, the lack of documentation for identification is still one of the top five barriers to financial inclusion.

Ivo Jenik 00:14:39  And so it makes sense for governments to invest in ID systems, for example. But you want to create those ID systems and at the same time have incentives for people to, you know, subscribe, go through that process and to have their identity established because there’s usually process, right. And that incentive comes with the access to form of financial services, for instance. So as you said, it really should go hand in hand. Yeah.

Jens Seidl 00:15:04  Yes. Yeah. Why would why would you go through all of this trouble if then at the end there’s no benefit for you. Right. So yeah, I get it. Okay. Good. All right. Well, then shall we talk a little bit about regulation because, I mean, you mentioned some of the innovation that’s happening there. And I think the thing is it’s not just technology innovation, but it cuts across many new sectors that, at least some of the regulators that financial regulators are typically not necessarily involved with. Right. So how do you think regulators regulators need to think about that now.

Jens Seidl 00:15:34  How do they need to adapt to this new world?

Ivo Jenik 00:15:38  Yes, this is the very important, maybe critical question really, for not only financial sector regulators, but for our society and for policymakers overall. How do we make sure that in such an important time, where a lot of new technology with unknown risks is scaling very fast? We reflect different views and different voices and different perspectives. And so with my team, we have looked at one element of this question. And before I get into that specific thing, I just want to say that before a typical project would be structured around a innovation one. So we would choose a specific innovation and then try to understand how it impacts on financial inclusion and what are regulatory issues surrounding their innovation. So I looked at crowdfunding, for example, or open finance that we’re going to talk about next time. and this time we have decided to take a step back and have a little bit more. I would say broader perspective and ask. We actually ask the question of what regulators do in this very dynamic environment to reinvent themselves, to be better able response to innovation as it comes, because it comes very, very fast and it has, you know, profound implications.

Ivo Jenik 00:16:59  And regulators are not known for being agile and very responsive. And they didn’t have to be really, because for many times the financial market was, you know, dynamic but not as dynamic as it is today. And so we looked at what we thought are some of the champions around the world, regulators that are, you know, generally known for, being, let’s say, progressive, when it comes to innovation or doing things that are interesting. So we look at places like Singapore, United Kingdom and other and other places that I may mention later. And we basically ask, what are they doing differently from the rest? And what we have found, I think, is probably applicable across jurisdictions, because we have tried to distilled lessons from those very distinct markets in a way that could be applied in markets small or big, in countries that are rich or low income, in places that are really developed or or less developed when it comes to financial sector. and so by, you know, inevitably some of these findings are relatively high level.

Ivo Jenik 00:18:14  But the beauty is that they can really be replicated in other places. And so we have summarized them in a concept that we call vision guided regulation, and that this concept basically revolves around Five elements. in the center is Division, which is effectively I’ll talk about it a little bit later, but effectively it’s like, a direction, a direction that the financial market wants to go or the direction the regulator wants the financial market to go. And that’s very important for a number of reasons. We can come back to that later. And then the other four elements are tone at the top innovation, culture, industry engagement and mandate. Now there’s a lot of granularity on what that means and how it matters. But we have found that consistently across the markets, regulators would do something distinct along those five elements that really set them apart from the rest, and that allowed them to deal with innovation in a more intentional, strategic, but also more agile manner.

Jens Seidl 00:19:24  Okay. Are you going to talk us through these five aspects in a bit more detail because I’m intrigued.

Ivo Jenik 00:19:30  Yes, I’m very happy to do that. And before I do, just for those who are interested in the research method, I should say that this was based on a combination of desk research where we reviewed thousands of pages of documents from all sorts of sources, from laws, regulations, articles, and so on, and then interviews. We interviewed hundreds of financial sector regulators, CEOs of fintech companies, leaders in the big financial institutions across, if I remember correctly, 20 or so markets, not only the specific leaders. So a really robust amount of of knowledge that we, try to synthesize in those simple five terms or elements. so as I mentioned, the the center of this concept is, is a vision, which basically may mean different things. In practical terms, it’s a public sector pronouncement, and it could be in the form of a document, speech or statement on a website. You know, the form doesn’t really matter, but it’s a pronouncement that states very clearly what is the desired future state for the financial market in this case that we’re trying to achieve, right? It could be even a simple sentence that is then somehow detailed elsewhere, but it basically says this is what we want for our financial market.

Ivo Jenik 00:20:59  Okay.

Jens Seidl 00:21:00  So very outcome focused, right. You’d be saying we want, I don’t know, drive financial inclusion and get the remaining 20% of people that are not included included or help, economic development, these kind of broad statements or does it go into more detail?

Ivo Jenik 00:21:18  Well, so that’s a really interesting question because, that would depend. And we didn’t try to be very normative on how much detailed it should be, but it should have sufficient it should have sufficient detail for people to really understand what that means. Which is a very important point related to why the vision matters. The vision matters because it helps to bring people, different stakeholders along the way and explain to them why we’re doing what we’re doing and what their role is. And that’s something that we have found consistently in some of those markets where, you know, we went to the market and spoke to a fintech startup or, you know, a large financial, large bank, right, largest bank in the country or an insurance company. And in those markets that we found to be really ahead, the people would tell us this is what we’re doing and this is what the regulator wants to achieve.

Ivo Jenik 00:22:12  And they would tell us exactly the same thing. And so when the regulator would come with a new idea like open finance, for example, and say, well, we’re doing open finance because it helps us advance our vision. And this is how it does help us advance the vision. People would understand or hopefully people would understand because they have that shared knowledge of what what the vision is. What it does for the regulator, importantly, is to prioritize, because we found that one of the biggest challenges regulators face today is prioritization. You know, there are so many things that are coming their way at the same time. And many regulators, if not all, have very limited resources. And some of the regulators have extremely limited resources. And so they cannot do everything at once. And that vision, that sense of direction, help you to ask the simple but very powerful question, is this specific thing going to help me to get there into that future outcome or not? And, you know, it’s simple, but it’s it’s powerful.

Ivo Jenik 00:23:14  And the same would apply for the market participants. So again, it could be a very simple statement. It could be also a quite lengthy document, but I think probably a combination of the two is important. And let me just maybe mention some of the other benefits it, provides. So besides this, almost like a triaging, benefit. the other one is that it reduces uncertainty for the market participants by making the, you know, the regulatory and policy priorities clear. Right? It’s, now the participants can kind of second guess what really is a priority for the regulator and what is not. And as you probably know, the financial sector providers or the private provider, private sector providers, they do often mention the regulatory uncertainty being one of the key barriers for their growth. So it’s very hard to invest if you don’t really know where the market is going. So the vision helps with that. It doesn’t really completely address it, but it does help it create some sort of predictability and encourages the the investment and innovation in the priority areas.

Ivo Jenik 00:24:31  And it also helps within the organization. And I’m now talking about, you know, central bank, Ministry of Finance, specialized financial sector regulator, to communicate internally while we’re doing what we’re doing and minimize the internal resistance, which happens very often, especially when it comes to innovation. So again, you know, that that vision, that vision helps. And maybe before we move to the, the the next elements, I want to just mention a few bullet points of where the visions fail and what we’re seeing. Visions? Yes. where visions fail. the most important one is ignoring local context. It’s very easy to transpose a vision of someone else’s to your own market, and it just undermines the whole purpose. It’s not believable. It’s not feasible. It doesn’t have those benefits that I have described. Also, overall complexity, pretty much undermines the whole point of vision. If, you know, I start talking about very complex, future state and how to get there. it will be hard for people to understand and really, line behind it that that vision.

Ivo Jenik 00:25:49  And an opposite side of that is if the vision is too vague or too broad. And I would say sometimes it means saying we want to have inclusive financial market, because to be honest, what that means depends a lot on your circumstances. You know, if you are in the UK, you can still care a lot about financial inclusion because you have micro entrepreneurs and small and medium enterprises who may be struggling in some segments of the society, right? It still can be a priority, but just saying we want financial inclusion. If you have 99% of people included, you know, doesn’t doesn’t really resonate. On the other hand, you would have a market where you really don’t have even access to basic payments accounts. And maybe that’s where you start with with your vision. So just to conclude on this, we do have specific examples in our publication where we talk about specific countries and we actually quote what the vision statements look like. So if people are interested they can actually see examples in the publication.

Jens Seidl 00:26:55  Interesting.

Jens Seidl 00:26:55  Great. I’m just conscious of time. Ivo, if you could run us through the other four aspects. yes.

Ivo Jenik 00:27:02  I go to the very compact way. Yes, yes, yes, I’ll do it. So I spend more time on the vision because it’s really the centerpiece. But no, no.

Jens Seidl 00:27:10  I agree with that.

Ivo Jenik 00:27:11  The tone at the top is very, Very tightly intertwined with that. It basically means that the vision is supported by the decision maker. It could be the governor, it could be the minister, it could be a deputy governor, but somebody on the top who decides who resources and so on is really standing behind it genuinely, not only at conferences but also in daily settings and supports the team and make it real for people so that people really believe the vision. And again, interesting anecdote. The few markets we have visited in person and talk to people. To my surprise, in those markets people would say, oh yeah, that was this person. They would name the person that created the tone, created the vision, and helped to set things in motion.

Ivo Jenik 00:28:04  Now, of course, it’s never about one single person. There are always teams behind, etc. but I find it very intriguing that I go to places in Asia and Latin America and Africa, and people would name one single person as a. Agent of change. so.

Jens Seidl 00:28:20  Interesting.

Ivo Jenik 00:28:20  So so don’t at the top may mean also a very specific person promoting the innovation culture. And again we have examples in the report of very specific people and then the innovation culture. it’s basically a set of values, attitudes and behaviors that encourage and support innovation within the organization, where it mostly means that innovation and experimentation is tolerated at minimum, but encouraged at best, something that sometimes requires a mindset shift for for regulators and of course, is not suggesting that regulators would, you know, go a long way to experiment and take on risks. But there is some change in the culture, how people see innovation not as a problem, but as an enabler, is something that, as part of their job, they need to actively think about how they can promote it in a way that supports their their vision, supports their, their, their mission, and that comes with many different aspects.

Ivo Jenik 00:29:22  One notable one that we’ve noticed is how teams within the financial sector regulator start sharing information and kind of educating each other and how teams are structured less around, specific verticals. But there are ways how they can horizontally exchange and collaborate together, licensing with regulation with sometimes IT department and so on. So that innovation culture sounds very abstract, but it has very concrete ways in which it transpires and can be promoted actively within the organization. Okay.

Jens Seidl 00:29:53  So that’s kind of interesting to check there because that that’s super interesting. because I think the instinct is you have this big regulator that is being used to regulating financial sector that hasn’t been super innovative, right? Where the the. I wouldn’t say that that it’s been like a supertanker turning very, very slowly necessarily, but at least it wasn’t going at that pace now. So the instinct could be to say, okay, let’s carve out, almost like a sub organization within the regulator to deal with all of the innovation. But you’re saying that’s actually not what’s happening. But people are, sharing those resources across the whole organization.

Ivo Jenik 00:30:38  It’s a great point that you’re raising hands, because that’s how a lot of regulators go about it, at least at initial stages. They carve out a team. We see that a lot with regulatory sandboxes and innovation hubs and fintech offices. Right. A small team of few who are fully dedicated to or ideally fully dedicated to the innovation thing. And and they are somewhere there. but in those countries where we found a significant advancement in how regulators organize themselves, those teams eventually start getting more exposure and more interactions with the other teams. And there is that mutual learning. And then the knowledge starts really flowing in both directions, because it’s I don’t want to suggest that, you know, the innovation team is the one who educates the rest. No, no no, no, it’s it’s mutual. Right. The innovation teams has definitely areas they don’t understand about how supervision works or what is, you know, the nature of prudential regulation in that specific segment, but taking them from where they were kind of safeguarded from the rest of the organization and bringing them in and allowing the interaction comes with the significant benefits that we have.

Ivo Jenik 00:31:51  We have seen and, something starts changing within the organizations in how they organize themselves, how they process information, and how fast they, address some of the innovation that that happens. So, you know.

Jens Seidl 00:32:06  It’s super interesting. Yeah. Okay, good. So that’s that’s the one aspect. What other aspects were there? I should have written them down.

Ivo Jenik 00:32:17  No no, no. So, so we are on the on number. I think we’re number three. So number four is industry engagement. Yes. To me, for a very long time, this is this has been an area where we have seen the most significant shift in how regulators conduct themselves and what they do. And I already mentioned regulatory sandbox is an innovation of offices or fintech offices. That’s exactly where the change happened and was incubated, where you would now have a dedicated point for everyone in the market to consult with regulators on things related to innovation, which is mutually beneficial. Regulators learn much faster about the market development. They can have informal consultations and for the industry, obviously a great benefit to have direct access to regulators.

Ivo Jenik 00:33:13  That is now in a way equalized. So it’s not only for the large institutions that typically, by nature, have direct access to regulators, but it’s really for fintech startups and others as well. And I, you know, have appreciated it because as a compliance officer, I would deal with regulators and, you know, there would be specific structures put in place for you to be able to reach out to regulators and have some sort of consultation. I think we have made a massive change in the right direction, where there’s much more interaction, formal and informal, but structured between regulators and providers. That, again, I mentioned is beneficial. And we have one example in the publication of Brazil implementing their Open by Open Banking and Open Finance framework, which I may talk about a little bit more next time, but that’s the perfect example of how they have engaged industry stakeholders in a way that helps advance implementation of open banking regime, much faster, resolve any possible conflicts among the market participants much faster, and and use this to constructively build the open finance regime.

Ivo Jenik 00:34:29  And the details are in the publication, but I find it as a, as a really great example. So that’s industry engagement.

Jens Seidl 00:34:36  And just on that is it is it fair to say that there’s now more of a dialogue? I don’t want to say a consultation even, but at least a dialogue, because when I came up in financial services in the 90s, it was really a matter of you, you draft what you’re planning to do, you give it to the regulator, and then they say, yeah, that didn’t work. Do it again. And they wouldn’t even necessarily point out to you where the issues were. It was more like there are some issues with that. You need to go back to the drawing board. Now it seems to be a lot more dialogue and helping people to actually get the right to to the right answers.

Ivo Jenik 00:35:08  Absolutely. I mean, it was standard practice that you would go to the regulator and you would never get really the answer. You would get a hint and then you would be guessing with the right answer.

Ivo Jenik 00:35:18  And so it would be iterative. Also very frustrating at times.

Jens Seidl 00:35:22  I’m so glad you both trust me. Great. No, no, absolutely.

Ivo Jenik 00:35:25  And and that was the good case scenario, because the chances are that you couldn’t even get to the meeting room and have that conversation or being able to submit it to, you know, a specific person for the review and have some feedback. Right. Sometimes you would submit things and then get rejection. so yes, dialogue I think is definitely a way to describe it. But it’s not only the dialogue, it’s the depth and quality of the dialogue that really, got our attention because we knew from the sandbox work, that there was this new thing of, you know, exchange. But then we’ve seen with our very own eyes that regulators are setting up WhatsApp groups to consult on specific issues. I mean, that’s, you know, a completely different approach, completely different world from, you know, here’s the public consultation on the proposed regulation. Send us your comments and we may consider them so so I think a really qualitative change in in that sense, and I want to emphasize that it’s mutually beneficial.

Ivo Jenik 00:36:29  Yes.

Jens Seidl 00:36:29  Absolutely. Great.

Ivo Jenik 00:36:32  And so then the last one that we have is mandate, which is I think something that resonates with regulators and lawyers in particular, because we have heard before, that mandate is a constraint for regulators who want to be more forthcoming when it comes to innovation. And we would hear different kind of things, but they can be all summarized as. We can already do this because our mandate is narrow. And that was our working assumption. And our working assumption, in addition, was that civil law jurisdictions would have more constraints because their mandates are really the definition of their their power and their their purview. And common law jurisdictions may be a little bit more flexible, and it didn’t really prove to be true. We’ve actually found that where’s the vision and where’s the tone at the top? and where’s the innovation culture? There’s usually a will to work legally with the mandate that exists, or to amend that mandate to where we need it to be in a, in a fast, in a short period of time.

Ivo Jenik 00:37:42  So mandate could be a constraint. But we found it in practice. It hardly ever is. And where it is, then it may have to do more with the other elements and maybe the lack of political will or overall willingness to really go into certain areas related to innovation. So so Monday matters. But we found it matters much less than we initially thought. And I just give one example. So there are of course jurisdictions that currently have explicitly innovation mentioned in their mandate. but we found that there are jurisdictions that have, for example, market development mentioned in their mandate, and they have now expanded their interpretation of what market development means to cover things like promoting competition or promoting innovation or enabling innovation. So it’s to me, as a lawyer, it was a fascinating area. And we had we probably spent most of our time of discussion time on this specific topic, because we kind of found it very hard to reconcile what we have been hearing for years from regulators about mandate being constrained and what we have been seeing on the ground in some of those markets.

Ivo Jenik 00:38:57  And so it was fascinating to kind of learn about how mandate could be, but shouldn’t be really a constraint.

Jens Seidl 00:39:04  Okay, interesting. And maybe on that we we’ve just concluded our central bank payment conference in Istanbul the other week, and there was a lot of discussion on regulation around how regulation traditionally focused on securing the financial stability. But more and more now with all of these innovations, the consumer protection aspect is weighing in a lot more. And I guess there’s also then coming back to mandate there are consumer protection aspects to regulation that do not fall under the remit of a central bank or financial regulator. For instance, telecoms play a big role in in technology innovations, right? or the technology companies for that matter. do you see that the regulators in the financial space work closely with other regulators that look after these other areas to to make sure that things join up, actually, and that they’re not going into completely different directions.

Ivo Jenik 00:40:09  I would say in those markets that are doing well, they are. And I will add to your list the data protection authorities and competition authorities, all of them are very important.

Ivo Jenik 00:40:21  And, we are now looking specifically at the, at fraud in financial services. And that’s where you basically cannot really do anything meaningful without collaborating across those stakeholders, including law enforcement. so there the issue of collaboration is pertinent and urgent when it comes to innovation. It’s very important, and it doesn’t happen as much as it should. we have, another chapter, but we have, dedicated, part of our report on collaboration. Specifically. I find it to be a hard one, and I’ll explain why. because it’s very easy to say you need to collaborate more. And there is no shortage of reports that have this recommendation as one of the key recommendations. You need to collaborate more. Now, people don’t collaborate for many reasons. Could be incentives, could be political setup. could be the mandate or legal restrictions. so the solution is usually very specific to that market and its institutional arrangements. for a very long time, when somebody wanted to recommend more than just collaborate more, they would say memoranda of understanding.

Ivo Jenik 00:41:40  I probably did that too. In my, my, my work. So memoranda of understanding are nice, but they’re no guarantee that the collaboration will actually happen. And there’s of course, a discussion about changing the institutional arrangements and how the institutional arrangements should change in the environment where things are so closely intertwined and you cannot really address those complex issues without the closer collaboration. But all of this, I’m saying, because, you know, there is no perfect solution that I have seen where collaboration would just work great in a in a way it’s supposed to be. But that innovation culture and the vision and the tone, these are things that really help, especially if they come from the very top. And I say what what I mean by that. If, for example, it’s the president or the prime minister or the government who really sets both the vision and the tone, we actually do see that the chances of implementing Agencies, even though there’s obviously a degree of independence for financial sector regulators. But the implementing agencies would collaborate more and there would be this sense of like, this is a shared goal that we should be working on.

Ivo Jenik 00:42:57  So this is not a good answer. It’s a very fascinating topic, to be honest, and it’s one where we have to come up with some solution because the financial markets are not getting any simpler. And now with technology like artificial intelligence, which largely resides outside of the financial sector, regulators, you know, we have to have the dialogue that cuts across differential shareholders or stakeholders.

Jens Seidl 00:43:23  Absolutely. And it’s a great prompt because I was going to ask you about artificial intelligence as well. But but it’s a two part question really. One is do you think that artificial intelligence is actually going to have a big impact on financial inclusion? Because I would argue that if it’s built the right way and if it’s built responsibly, it can actually help people to access financial services a lot easier if you’ve got your your bot or whatever you want to call it, doing it for you. That’s so much easier than doing all of the research yourself and trying to figure it out. but also then, from, from a regulatory perspective, are the regulators ready for this and how can they get ready for this, revolution? Because this is moving at a breathtaking pace, right?

Ivo Jenik 00:44:12  So I’ll I’ll give you my my view.

Ivo Jenik 00:44:14  This is a very interesting question. And, you know, Lily, we knew 20 years ago that 18 banking one day would mean something completely different, you know, because agent banking was the mobile money. Right now, agent banking is a robot making, payments on your behalf. my take on the artificial intelligence and financial inclusion is that, it can go all possible directions. I agree with you that it can have really positive impact on people, especially in deepening financial inclusion and making financial services more relevant. I don’t think it’s going to solve for the access issues, because they have to do with the structure of the market and infrastructure in place. But once you have access, you know, you may actually be able to have, a conversational, or access to the financial advice that is conversational, conversational, really bespoke to your needs and to your abilities and so on and so forth. All of that, I think, can happen. But my biggest concern, and I think where the regulators should be now focusing on is to ensure that we regulate, honestly, artificial intelligence in a way that we don’t create an inclusion problem down the road.

Ivo Jenik 00:45:33  And it could be financial inclusion problem or generally inclusion problem down the road, or any sort of massive consumer protection problems and maybe even stability problems down the road. And I’ll just give one example that I really, I wouldn’t say like, but but I think it shows, the stakes. It’s been 20 years since social media has been around at certain scale, and social media is now used for, you know, selling services, getting access to formal financial services, even for financial advice. and we still don’t have a consensus on how fine, how social media should be regulated. We’re still at the very early stage of that policy conversation, and it’s a very difficult and very political conversation. And it’s not moving as fast as I think it should. Despite all the negative, effects of social media on our society or on individuals that have been proven. This is not argument against social media, it’s argument against slow policy Considerations. Now, artificial intelligence seems to be moving much faster than social media, and it seems to have much more profound implications for how our society operates.

Ivo Jenik 00:46:51  So I’m a little bit worried that we will repeat the same mistake, and will take too long before we have consensus on at least basic minimum safeguards for, for for this technology. And that involves not only financial sector regulators but generally policymakers. So I would say this is where we are literally at the time, where those key policymakers should be around the table thinking very hard about those minimum safeguards to make sure that we’re not creating some problem down the road. That would be hard to solve.

Jens Seidl 00:47:24  Very interesting. well, who would have thought that time flies so much when you talk about regulation? We’re almost out of time. But before we wrap today, though, part one of our conversation. Any parting thoughts on specifically the regulation aspect. Anything you’d like to share with our listeners before we wrap up for today?

Ivo Jenik 00:47:47  Yes. So this is a little bit of, appeal, I would say to people who listen and who may think financial inclusion to be a marginal topic that only concerns poor people in low income countries that are somewhere remote.

Ivo Jenik 00:48:03  I want to really emphasize that financial inclusion has never been more important around the world because it has become that invisible layer, that invisible gateway into the digital economy. And so if we are thinking about what the future economy looks like, if we’re thinking about what the future financial system look like, we should try hard to think of inclusive design that helps those 1.3 billion people to benefit from financial services, but also ensures that they are not, you know, 2.5 billion people. Ten years from now, because the design will change and there’s no guarantee that the design will be more inclusive than it is today. In fact, it may be more exclusive. And so we should be very careful. And the time for many of those consequential long term decisions is right now. So it’s also very exciting for people who are in the policy space to think about how much of power and impact they may have on the future generations because of the decisions that are being made today.

Jens Seidl 00:49:14  Wow. I let that, stand like this and let people think about that because you mentioned it before, right? That over the last ten years, we have managed to get a billion people included, the perspective that there could be a development where they get excluded again, or a different billion people get excluded again, is a scary thought.

Jens Seidl 00:49:36  So. Food for thought for sure. thank you so much. really enjoyed this conversation a lot. I’m looking forward to our next conversation about open finance. and to all of our listeners, please watch out for that one. thank you so much, Ivo.

Ivo Jenik 00:49:53  Thank you very much for having me and for the opportunity to share the work of Siegert.

Jens Seidl 00:49:58  Great. Thanks. All right. Well, and, this concludes our episode today. Please do like follow do whatever you need to do on your platform to make sure you dial back in for our next episode with Ivo talking about open finance. Thank you. And bye bye.