Welcome back to our course on FinTech Security and Regulation.
We're now going to summarize where we have been on our journey through this first module.
In this module, you've looked at risk and risk management,
and we've said that risk and management of
risk is inherent and fundamental to financial markets.
In fact, much of the ways that large banks or
financial institutions create value is through more effective risk management,
through diversification or economies of scale or expertise.
So, by enabling better risk management in highly risky products and fields,
there's margin created and banks make money.
So, risk and risk management is important.
Regulators also seek to reduce risk because
excessive risk not only hurts institutions but
it also hurts the economy and it hurts investors.
The goals of security and regulation are to reduce risk.
Security is to reduce physical risk,
regulation is to reduce financial risk or market risk or fraud risk,
various kinds of risk or bad activities.
We want to reduce crime with security,
we want to reduce crime with regulation,
we want to reduce just general bad decisions
or consequences of mistakes in judgement with security and regulation both.
So, they have a lot of overlap.
There are some differences between them,
but there are probably more similarities in many ways between security and
regulation as a goal of reducing risk in financial markets,
than there are extreme dissimilarities.
There are different tools both use to achieve those same goals,
but the goals are similar.
Then, we looked at RegTech,
and we said RegTech is both,
two different kinds of things.
One is responding to technology with new regulations or
new ways of thinking about innovation and innovative services or new tech.
That's part of RegTech,
how do we regulate new innovative financial services,
products, and markets that have evolved.
The second part of RegTech is,
how do we use technology to more quickly and at
lower cost respond to regulation needs and requirements?
Because technology can help us to reduce the burden and the cost of regulation.
Regulation is there to help us to be more secure,
and that's a good goal.
But sometimes, the cost of regulation can be very high.
RegTech can help financial institutions meet those goals at lower cost,
and so, that's a good thing.
InsurTech is the application of FinTech and RegTech into insurance markets.
Some of those markets are much like other FinTech products,
and you would say, whatever,
it's FinTech for insurance.
But some of it is more on the RegTech side of things,
and insurance regulations are their own world.
They're very different, in some ways at least, from banking regulations.
So, InsurTech looks at how can insurance companies better take advantage of technology.
We also have some new applications coming out that change the way we would do insurance,
the way we think about insurance,
not just making it more convenient for consumers because that looks more
like a FinTech application or even an e-commerce application,
it's just more convenient.
But sometimes, it's a whole new way of thinking about insurance,
a whole new way of reducing risk and reducing cost for customers.
Then, we looked at regulations and how regulations may help us in society,
may be helpful, and why the goal of regulation is a good goal.
But sometimes, regulations become outdated
or become excessive and they can become harmful to society.
So, regulations do help in very important fundamental ways,
but outdated or excessive regulation can harm,
as well as good regulation can help.
So, too much regulation or the wrong regulation is bad.
The right regulation is very, very needed.
But that puts a challenge on regulators,
particularly when the world changes around them.
How do you make sure your regulations and policies
are appropriate for the technology and innovative markets that we're facing today?
Finally, like regulation, too much regulation can be bad,
too much security can also be bad.
So, we looked at how much security is optimal,
and are we there.
The answer is, we're not.
In some areas of financial institutions,
we still don't have enough security.
We still need to improve our security on our systems,
on our infrastructure, on our policies.
In other areas, we probably have
too much security or too much focus on preventing any kind of risk,
including risk that is very convenient to consumers.
Sometimes, we make things too hard.
We need to keep in mind that we are in
a consumer-facing organization and a financial service firm,
and if a FinTech startup is going to be more friendly, more useful,
consumers are likely to flock to that even if it's
riskier because they really love the convenience.
So, we have to make tradeoffs and choices.
Too much security may be holding us back,
just like too much regulation may hold us back.
Thank you very much for being part of this module one.
We look forward to seeing you on our next module.
Theodore Henry King CLARKAssociate Professor
