Move fast and break things: It’s a philosophy that many in the tech world have adopted as their mantra, long after Mark Zuckerberg immortalized it as the unofficial motto of Silicon Valley.
Innovation is the lifeblood of the technology industry, but what happens when new technological paradigms “break things” and there’s shattered glass on the floor? Who is stuck with the bill?
Across the world, lawmakers and regulatory agencies are mulling this question, and many have big tech squarely in their sights. The recent case of Facebook’s proposed Libra token is a good illustration of this – U.S. Congress had a bipartisan field day with the social media giant during a series of heated hearings, expressing their skepticism of both the proposed cryptocurrency and the social media giant’s good faith. Across the pond, the EU’s General Data Protection Regulation targeting data privacy, and the UK’s recently announced Digital Markets Unit to monitor large online companies, are similar examples of this growing consensus.
In electoral politics, Democratic presidential primary candidate Elizabeth Warren has listed breaking up big tech as a central tenet of her platform, turning it into a hotly debated topic on the campaign trail. On the other side of the aisle, calls for measures to prevent firms like Facebook or Google from censoring conservative speech have become common among Republicans.
Regardless of how you might feel about these regulations in isolation, the sum total is enough to make your head spin. Look at the headlines on any given day, and it’s easy to get the impression that there is a war on big tech.
The architects of our new technological ecosystem can be forgiven for sounding the alarm. After all, wasn’t it just a decade ago that Silicon Valley was the darling of a world on the cusp of digital revolution? Hasn’t it brought people closer together in ways once thought impossible? Won’t these new regulations suffocate the very spirit that thrust the tech world into the spotlight in the first place?
The answers to those questions are yes, yes and, crucially, no. While regulation is inevitable, it doesn’t need to come at the cost of innovation. Done right, a robust regulatory framework can support efficiency and results while also promoting transparency and fairness.
Need proof? Just look at the capital markets.
I work with dozens of the largest firms in financial services, and like big tech, our industry does not have a spotless history. Bad behavior and predatory practices by market participants caused – either wholly or in part, depending on your perspective — the 2007 subprime mortgage crisis that ballooned into a global financial crisis, causing regulators to think long and hard about their role in protecting investors and promoting fairness. While obviously not the only example of economic downturn caused by risky behavior, these developments followed a wave of deregulation in the 1980s and ’90s and stand as defining events for the current generation of lawmakers.
While they may not have done so as swiftly and forcefully as some would have liked, regulators acted. The Federal Reserve increased its oversight of institutions that play a pivotal role in market stability. The Dodd-Frank Wall Street Reform and Consumer Protection Act brought sweeping reforms to the U.S. financial services industry on a level not seen since Franklin Delano Roosevelt’s “New Deal” in the 1930s. In Europe, the UK FCA focused on improving the culture, conduct, and accountability of investment firms, while Basel III has strengthened capital requirements and will continue to do so as the ultimate deadline approaches, now set for 2022.
Make no mistake, there was plenty of resistance to these measures at the time they were adopted. But the doomsday criers are now few and far between. Far from being suffocated by lack of innovation or controlling lawmakers, the financial services industry now has the best of both worlds.
A quick look at what banks have been able to accomplish in recent years dispels the notion that slowing down is an inevitable consequence of increased regulation. Consider the “robo advisors” that now make it cheaper and easier than ever to invest, or the fact that customers are carrying out complex banking operations from their cell phones. Elsewhere, machine learning has taken over the back office in the form of highly sophisticated compliance frameworks. Finally, some of the largest incumbents are in the process of internally developing comprehensive next generation platforms for their institutional client bases, a significant lift that these institutions expect to be a big boon to business.
These are not the activities of an industry that has been hindered by regulation. Instead, regulation has given investors and lawmakers transparency and peace of mind as innovation continues at a rapid pace. There will always be growing pains, but banks have largely succeeded in finding plenty of room to generate new ideas and remain on the cutting edge while also steering clear of activities that would land them a date with the SEC. The industry is better for it.
The tech world should look to finance as a model. The heightened interest in regulatory action may be jarring to those working in big tech, but ultimately it is not a long-term threat to the health of their industry. Today’s engineers come out with new products faster than consumers can make sense of them, so even if some firms are slowed by these new measures, it is a small price to pay for greater accountability and transparency in what has become the new world order.
Instead of stressing over the potential negative effects, the tech world should see this as an opportunity to shape what effective regulation looks like in this space. When regulators are fearful or don’t fully understand the landscape, they are more likely to roll out blanket rules that unnecessarily constrict industry players or fail to address the heart of the issue. By taking an active role in educating both regulators and the wider public, tech can make its best case for proportional oversight.
We see this playing out in regulatory sandboxes around the world. These allow for testing and development of new ideas in an environment that will safeguard consumer protection. Too often, the relationship between innovator and regulator is an adversarial one; by working together, they can create a robust regulatory framework that preserves the best sides of Silicon Valley’s longstanding ambition to transform the world.
So Silicon Valley, take it from Wall Street: you, too, can learn to love your regulated future. It’s just a matter of suspending your skepticism and pursuing regulations that work for everyone – consumers, lawmakers and, yes, big tech alike.
Mazy Dar is CEO of OpenFin.