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Dr. Ian Malcolm warned the owners of Jurassic Park that despite the efforts of the park to prevent dinosaurs reproducing, “Life finds a way.” As with dinosaurs, so too with people. Driven by advances in technology and the unmet need for services, new and innovative companies and products have stepped into the void left by traditional financial firms. These innovations allow millions of American consumers and businesses to access credit, transfer funds and manage their financial lives more effectively than before. Unfortunately, regulation has not kept pace, making the United States less dynamic at home and less competitive globally. Fortunately, President Trump has an excellent opportunity to improve the lives of all Americans by preserving and promoting innovation and competition in financial services.
President Trump has considerable direct power to make the U.S. more innovation-friendly. Trump should establish a pro-innovation culture in his administration. Rather than requiring innovators to justify their innovations, the government should have to justify saying “no.” A pro-innovation culture would not seek to pick winners and losers, leaving that to the people.
The president can also directly and indirectly guide agencies to look favorably on innovation. Through the use of executive orders and other formal means President Trump could direct government agencies to act with an eye towards inviting and supporting innovation. The new president could also direct the Office of Management and Budget to consider the potential impact on innovation of the regulations it reviews and block rules that unduly hamper innovation.
President Trump should also coordinate the efforts of different regulators. Fintech firms find themselves within the potential reach of many regulators. The sprawling U.S. regulatory system is confusing enough without agencies playing politics at the expense of progress. A president can insist on a unified, pro-innovation process for consumers and innovators.
To establish a pro-innovation culture President Trump must also appoint pro-innovation regulators. With numerous vacancies open or soon to be open at financial regulators, personnel decisions will be critical to fostering innovation.
President Trump should look for candidates with enough humility to avoid assuming they know what the future must look like. The future should not be constrained by the limits of an unelected regulator’s imagination. Humility also dissuades regulators from substituting their preferences for those of their fellow citizens. Recent scandals like Operation Choke Point show the harm that can be done when unelected regulators decide to enforce their views as law. This is especially harmful for innovative products because it creates uncertainty as to what is “really” acceptable, despite what the law may say, discouraging risk-taking. President Trump should have no tolerance for this, and should select candidates who share that view.
Candidates should also possess the humility to recognize that changes in financial technology can make the economy safer and some current regulations unnecessary. Different processes create different risks, and may even remove or address risks that once required government regulation. Instead of assuming that the future must look like the past, regulators need to question their assumptions and be willing to embrace new paradigms. This way they are less likely to force consumers to bear the cost of ineffective and expensive regulation.
While President Trump can accomplish much on his own, there are areas best served by working with Congress. For example, as the president and Congress pursue regulatory reform, they shouldn’t stop at fixing the mistakes of the past. They should also build a regulatory process for the future that is more flexible, less costly and more accommodating to innovators.
For example, President Trump should work with Congress to create a robust regulatory sandbox that protects consumers while allowing innovators to cabin their regulatory risk, encouraging investment and experimentation. Such sandboxes have been established by the U.K., Singapore and other countries seeking to attract innovation, and the jobs and prosperity that follow. Creating a sandbox will help the U.S. remain competitive.
Visionary politicians don’t predict the future, they create space for the future to grow, evolve and find its way without unnecessary interference. President Trump has an opportunity to create just such a space for financial innovation. Hopefully, he will seize it.
