Innovation versus regulation and the future of digital banking with Blockchain Coinvestors CEO

Joe Kornik: Welcome to the VISION by Protiviti podcast. I'm Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource examining big themes that will impact the C-suite and executive boardrooms worldwide. Today, we're exploring the future of money. And I'm excited to welcome in Matthew Le Merle, managing partner and CEO of Blockchain Coinvestors, which he launched in 2014 with the goal of providing broad coverage of the fastest growth blockchain companies and crypto projects. I'm pleased to turn over today's podcast to my colleague, Protiviti Managing Director, Digital Assets and Blockchain Solutions, Lata Varghese. Lata, I'll turn it over to you to begin.

Lata Varghese: Thank you, Joe. And Matthew, thank you so much for joining the podcast today.

Matthew Le Merle: Great. It's great to be here, Lata. And I'm looking forward to speaking to your audience and to your questions.

Varghese: Sure. As we dive in now, Blockchain Coinvestors might be unfamiliar to some of our listeners. And, in fact, the whole space of blockchain investing might need a little more explanation. So, can you tell us a little bit more about it and your role at Blockchain Coinvestors?

Le Merle: Yes, I'm happy to. So, along with Alison Davis, I'm the founder of Blockchain Coinvestors. We had been investing in internet and fintech here in Silicon Valley for about 20 or 20-plus years. And about 10 years ago, we saw those two innovations converging on something new. And so, the internet and fintech came together to create something called Bitcoin, which was put on top of an innovation called blockchain. And we were very taken by the arrival of the world's first digital money that worked at scale. And there are some very important reasons why we thought that that was a transformative moment.

So, we pivoted to be 100% focused on investing in blockchain. And we've done that ever since. We're the leading and most diversified funder funds in the world in early stage blockchain investing. And so, that's what we focus on. We've backed more than 800 blockchain companies and projects at this point in Europe, North America and Asia. And we do not trade. So, just to make that clear, we're early-stage venture investors, but we are not public liquid crypto traders.

Varghese: Great. And I know Blockchain Coinvestors’ position is that the move to digital money’s, commodities and assets is pretty inevitable. And in order for all that to happen, really, all of the world's financial infrastructure must be upgraded. Now, in your view, Matthew, how does that happen? Like, who leads this effort? Is it public, private sector? If I look back at how the internet adoption was driven by a large part by government investment and mandates, and enterprises had the pull factor in past computing cycles, right? So, who does the heavy lifting for all of this to occur, right?

Le Merle: So, you just said something there, which isn't quite my memory. I believe that the rollout of digital communications and content on a global basis wasn't driven by governments at all. It was driven by innovators, and the world's most innovative companies, including, of course, the world's most valuable companies of today—the Apples, Microsofts, Amazons, Googles, Facebook, Alibabas, Ten Cents, Baidu's—those were the companies that brought digital communications and content to us. It actually took a while for the incumbents, the large telcos, the large media companies to embrace the internet. And in fact, if you go back to the 90s, most of them were resisting it, they didn't want it. Blockbuster famously told us all that we didn't need downloadable content at all, we could just go to a local Blockbuster store and pick up a CD or a DVD and they had a store on every corner.

So, my remembrance is that innovation is always driven primarily by disruptive innovative companies. And the large incumbents take a while to come on board. And in fact, they resist innovation because innovation disrupts their current ways of doing business and making money.

And so, now talking about blockchain or the digitalization, as you said, of money's assets and commodities, I think it will be exactly the same. I think the most important breakthroughs of this moment are being driven by the innovators. And that could be Coinbase, that could be Anchorage, that could be Tether and Circle. And then the incumbents, some of them are working very hard to catch up. And that's why PayPal has announced its stablecoin and why Citibank has just announced it will be using tokenization to drive payment transfers for its customers. But the majority of the world's banks and payment companies will be trying to slow all of this down in this timeframe because they're not ready for it.

And then governments, the role of government is always to create pro innovation regulation, in my opinion, since innovation is the driver of jobs, GDP, and economic growth in every economy of the world. And any economy and any government that purposefully tries to slow down innovation, always regrets it later. They discover that they lose ground on a global basis and they end up not capturing the jobs and the GDP growth, if they proactively try and slow down innovation, and that's just the way it always is. And I could be talking about life sciences, I could be talking about clean energy, I could be talking about enterprise software. It's true across all areas of innovation.

Varghese: Yes, thank you for that clarifying comment. Really, I think my question was about government setting the conditions for innovation to occur with active investments also in infrastructure and other related things, right? Of course, the companies are the ones who innovate, but you do need the innovation set up to be—set up in a way where companies can actually act with conviction that their products and services can get deployed in the market.

Le Merle: Yes. Well, so I—no, I don't agree. Governments do not create the backbone or the innovation infrastructure upon which innovators build. Time after time, what we actually see is governments waste enormous amounts of money, billions and billions of dollars on infrastructure that we end up not using. And if all they would do would be to get out of the way and set pro innovation regulation, the private sector makes it happen. And so, Tesla put in the fast-charging infrastructure of America at this point, and the government didn't do it. They could have done it, by the way, the government could have simply said that every transportation node in America should have fast electronic electrical supercharging in it, because of course, at the federal, state and local level, we do have a lot of transportation agencies in America; cars, trains, planes, and auto, etc., but they didn't do it. And so, Tesla's had to build it and others are now trying to catch up. And I'm just using that as an example. I don't think government is good at innovating. I don't think large established companies are that good at innovating—a few of them are. I think that innovative companies are very good at innovating, and then the rest of us figure out later how to take those inventions. And when I say the rest of us, I mean, established companies, figure out later how to take those innovations and embed them in their own businesses. And I think that's okay. I think the process of innovation has to be driven by people and companies that are unencumbered by other distractions. And government agencies are just not that good at innovation.

Varghese: Right. And their job is to provide the regulatory clarity so that innovators can do what they're doing.

Le Merle: Yes, preferably we prefer that, but it's difficult and I appreciate that. It's very difficult for a regulator to both maintain regulation of today's industries, businesses and activities, whilst at the same time, trying to figure out what a new body of innovative regulation would be for a future that hasn't yet occurred. And so, we always have that tension. Our preference is, as you say, Lata. I mean, as investors in innovation, we prefer to have regulatory clarity, but we also appreciate that that's very hard. The thing we don't want ever is anti-innovation regulation, right? So, if I had a choice between anti-innovation regulation, pro-innovation regulation, or regulatory confusion and lack of clarity, I would pick two out of three. The one I wouldn't pick would be anti-innovation regulation. And unfortunately—well, fortunately, in the internet years—America was a leader in creating pro-innovation regulation.

Right now, every other jurisdiction in the world is leading in establishing pro-innovation regulation for digital moneys, commodities and assets. And unfortunately, in America, we have a small number of people who believe that we should be killing this innovation. And they are a small minority of people, but they're working very hard to create anti-innovation regulation. And it's holding America back. And it's actually putting America on the wrong side of this innovation, which is very unfortunate. America has always been an innovation leader. America has also been the world's financial leader. And the danger here is that we end up being neither innovative nor a financial leader. And financial services is probably America's most important industry.

Varghese: You make some fair points there, it's just that the space is inherently complex, you're trying to upgrade infrastructure. And without clarity, it just kind of slows down the innovation a fair bit and incumbents who have their regulatory moats, protecting their existing businesses, find a little more time to sort of adapt, adopt, because this is we're talking about financial services and highly regulated industries.

Le Merle: So, in terms of corporate strategy, for many companies that are not very innovative, a good strategy is to try and slow down the external environment, because they don't have the ability to compete. So, I do understand that there are incumbents that would like to slow down innovation, but at the level of national economic strategy, i.e., at the level of the country, the United States, the EU v. China, for example, it's never a good strategy to be slow on innovation. And we know that, so if we can go back decades or even hundreds of years, and we can show the most innovative countries captured the lion's share of the global economic trade and value.

And so, in terms of the competitiveness of nations, you have to be pro-innovation, there is no alternative. And so, at the level of America, we have to be pro-innovation. And along the way, we have 5,000 banks in America, not all of those 5,000 banks will survive because they won't be able to keep up. And we've seen that in other countries that have many fewer banks. We have very large nations that have 20 and 30 banks, not 5,000 banks. So, I'm using that as an example. The fallout of innovation, especially global digital innovation, is that industries become larger, economies of scale and scope get larger, but we also have concentration. And concentration means some people fail. Within blockchain, specifically, we have a lot of disruptive companies moving fast in countries around the world. We have a few very large, innovative companies, and I'll use PayPal as an example, that are moving very fast. And then we have an awful lot of incumbents that are nervous and are trying to slow everything down. And I guess my bottom line is what I've already said, which is, if I was running the UK, the U.S., the EU, Switzerland, Abu Dhabi, Dubai, Singapore, Hong Kong, I would be passing pro-innovation regulation right now for digital moneys, commodities and assets.

Varghese: Absolutely. So, clearly, the underlying innovation for the blockchain, underlying Bitcoin, that led to all of this transformation of money and that will bring about a sea change in how we transact digitally as businesses, governments, people—granted, right?—but because it is so complex as money says a lot of options, the race for that digital currency dominance is on. So, there's Bitcoin, there's central bank digital currencies, there's tokenized commercial bank deposits, which almost is a reaction from the banks to the innovation. And as you quoted, the IUSD stablecoin launched now. All this, Matthew, to me seems to suggest that it is a transformative change in payment options, but then if you have one option, why can't you have multiple options? So, do we go back to the world of private tokenized money or probably sort of trading differently deflecting the credit quality of the banks issuing them? How do you see all of this evolve? Because it's something as complex as money and value.

Le Merle: Yes, it's a great question. And there's multiple components within that. So, for your audience, let's just unbundle it a bit. The first question—and I'm a bit of a fundamentalist around consumers and consumer benefits—so, let's just start there first. If we went back to the year 2000, and all of your listeners thought about how they did communications, how they got and shared and stored their information and how they did their financial transactions and investments. And now, if they thought about this year, 2023, and how they do all of those same things, and then if they rated them by speed, cost, accessibility, and ease, what you'd discover—everyone on this listening to this would discover—is that their communications and their information sharing have become dramatically better. The consumer benefit is demonstrable. It's almost real-time. It's almost no cost. It's ubiquitous. When Google told us they would make the world's information available to all of us in real-time at no cost, we didn't believe them, but they did. And not just them, obviously, a host of others. So, the consumer benefit has been demonstrable. And we all have benefited from it. And every industry and business has changed.

Now look at commerce, finance and investing, it hasn't changed much at all. We basically use the same approach to taking a loan, paying with a credit card, transferring money internationally, it's slow, it's expensive, it's painful. We have to answer telephone calls to confirm wire transfers. It takes a week. Our investments don't settle in t-zero, they settle in three days and four days. And if we want to buy a house, it can take 90 days just to complete the mortgage and the title transfer.

So, the financial industry has not provided consumer benefit in the last 20 years in a substantial way. And so, you have to begin there. And then you have to say, “Well, okay, how did we create that consumer benefit in digital communications and content?” And it wasn't centralized. It was diverse and decentralized. One day, you had Hotmail or you had Yahoo Mail, or you had Google Mail, and there were many of them and they were competing. But they were all better than you writing a letter, putting a stamp on it and giving it to the post office. And you started exploring with, “Oh, my gosh, I can communicate to people I want in almost real-time. And this is strange. They're not charging me anything. They're showing me an advertisement which I'm not sure if I like it or don't like it, but it's free. I'm getting free global communications. What's that about?”

When we digitalize moneys, do we think we'll have more or less? And will they be central bank only or will the private sector play? And how will that play out? And I guess my expectation will be, it will be a process of disruptive innovation. It will start out with more, and then some things will win, and we'll end up with fewer. The process of innovation is chaotic, confused, decentralized and disruptive. And then over time, we begin to figure out who the winners are, and we have less. So, I'm expecting the same thing. And I'd like to think that the digital dollar is a winner, and that we'll have both central bank digital dollar perhaps, but I'm expecting we'll have private sector digital dollars. And my bet is that they'll be issued by big banks and other financial players, but maybe there'll be a role for Circle and Tether as well. And the regulators will have to set the rules of the game. But if the regulators say there will be no digital dollars, they're throwing the baby out with the bathwater because the digital dollar is, from a consumer benefit perspective, it's real-time, low-cost and easy to use. That's why so many people are using Circle and Tether. They are superior ways of transferring money. Bank of America says the invention of the stablecoin is the greatest invention in the history of money. And it's because it is real-time, low-cost, easy to use money that can operate on a global scale. And that's the holy grail of payments.

Varghese: Right. And because payments and transactions are moving across, so don't you then think that having some standardization on how these digital dollars, or types of it, is created is important because it's almost like if every bank has its own sort of ways in which this is ledgered or on crypto rail, so to say, a digital dollar, if there are different points of view on how that should get created, then what does it fundamentally sort of solve in terms of an efficiency play?

Le Merle: Yes, but you see, you can't standardize innovation. That's the equivalent—if in the Betamax-VHS moment, the government had said, “Okay, we're going to pick a standard,” which one would they have chosen? The answer was Betamax. Betamax was the superior technology. So, from an objective perspective, if you had chosen to stop innovation in that moment, we would all be on Betamax and we wouldn't never have had CDs, DVDs, or downloadable content because we would have made rigid a set of standards that said the chosen way of storing and sharing data is on Betamax tape. And governments make that mistake all the time—you can't set a standard in a moment of time when you have rapid innovation occurring because the next innovation may be superior to anything you understand today.

I think that standards are very dangerous in a world of innovation. I think that what a regulator has to do is to create a dynamic, flexible regulatory structure that provides some clarity, but still permits additional waves of innovation, and it's very difficult. So, what does that look like? Right now, what that means is what MiCA is, it's what the UK and the Swiss have done as well, other geographies are doing, which is you need a market structure bill, which basically sort of says, “We believe the shape of the industry is the following. We think the shape of the innovations is likely to be the following. And we think the likely participants of it is supposed to be the following. And we'll set some guidelines around that.” And then you need some specific clarity around definitions of what we're going to be building, which I believe digital moneys, you can call those stablecoins, if you wish. The stablecoin is a little bit of a bad name because they don't have to be stable to be digital moneys, so, that's a bit odd, but call it stablecoins. And then you need some frame of reference for digital assets. What are digital assets? And what is the process of tokenization and where do you draw the line? And Gensler was asked in Congress, he was asked, “Is a Pokémon card a security?” And he said, “No, it's not.” And then he was asked, “If I tokenize a Pokémon card, is that a security?” And he said, “I need more information.” Well, he's the regulator. So, he needs to set out the digital asset, a regulatory framework that draws the parameters. A Pokémon card is not a security, a digitalized tokenized ownership record for a Pokémon card doesn't make it a security. But if it's bundled up into an investment contract, and you're selling a large batch of Pokémon cards, and you're guaranteeing a financial return, you cross some lines, right? I mean, I can turn a Pokémon card into a security if I say certain things about it. That clarity—market structure, what's a digital money, what's a digital asset—most financial centers in the world are putting that in place. And so, that's what the UK has done, Switzerland's done, Europe's done, or at least they're close to finishing. Abu Dhabi, Dubai, Singapore, now Hong Kong, are moving very quickly to clarify those parameters.

Varghese: I don't disagree at all, Matthew, my only pushback would be if that standard is slow in emerging and if different forms of innovation come, then the efficiency that is touted by having money that moves across ledgers, both private public ledgers is able to transfer as a digital asset, where the asset is intelligent. It just takes a little more time and then there's a whole lot of other existing world processes slapped onto this, then I think it also adds cost on the infrastructure side, right?

Le Merle: Yes. Yes. So, I agree with that but that's why earlier on, I told you, I would take pro-innovation, dynamic regulation first. And then I would take no regulation and regulatory lack of clarity second because that still permits innovators to innovate. And the worst thing is anti-innovation regulation, which kills—throws the baby out with the bathwater. And the issue with that is that the world's a big place and there’s many jurisdictions. So, the danger of anti-innovation regulation is that all the innovators go somewhere else, and you lose your competitiveness of nations. And unfortunately, America is losing its competitiveness in this race to be the future of the financial system. I want America to be the global innovator and I know that we have to be the global financial hub. And if we lose the dominance of the U.S. dollar as the reserve currency, I think that we have very serious issues because we have an enormous deficit, we rely upon other people to buy our treasury securities. And if they don't want to hold dollars, we're in a very bad place.

Varghese: You actually answered the question I was going to ask you directly that do you see that rise of all these other currencies impact the U.S. dollar’s positioning as the world's reserve currency?

Le Merle: How could it make sense for China—to use China as an example—how could it make sense for China to do all of its global trade in dollars? Because China does about 30 to 35% of the world's exports, and I believe about 15 to 20% of the world's GDP. And when China trades with Brazil, Brazil's denominated in reals, and China uses renminbi or yuan, so wouldn't it make sense for, when China gives billions of dollars to Brazil, Brazil buys billions of dollars of Chinese equipment, China buys billions of dollars of commodities and Brazil buys billions of dollars of finished products from China, that they would not be denominated in dollars. They would be netted out at the level of the nation on a ledger that China and Brazil would have between the two of them. And they would maybe denominate it in real, but realistically, they would denominate it in Chinese currency. So, it would not pass through the dollar. I mean, that obviously makes sense, but the state of the world for the last 75 years, since we went off the gold standard at Bretton Woods, is that we have actually denominated Chinese global trade in US dollars, and it passes to a large extent on the Swift network. And if you're the head of the Chinese government, or the Chinese Ministry of Finance, you're going to say, “I can't have that. It's a question of national security because I just saw the U.S. turn off swift for the Russians, as an example. So, I need—as a matter of national security—I need an alternative way to transact with Brazil, all right?”

So, now you just roll that forward, and you sort of say, “Can we sit…”—“we” being Americans now— “Can we sit on our laurels and presume that the U.S. dollar and the US dollar international remittance system will always be used by everyone?” And the answer is no, we can't presume that. So, now it's about competitiveness. Now it's about—well, if the if the U.S.-based global remittance system was fast, cheap and easy to use, would it have the right to win in international trade? And the answer might be yes. But on the other hand, if it is slow, costly and hard to access, then of course people would abandon it in favor of digitalized, faster, better approaches.

And so, I come back to the earlier point, which is China, and Russia, and the euro and the EU, as examples, are preparing digitalized versions of monetary systems. And if the U.S. presumes that it can kill all that innovation, and just say, “You have to stick with dollar on Swift and you have to answer your telephone call when someone calls you up to confirm the transfer,” that we're going to lose.

Varghese: So, that potentially might be what worries you about this digitized future where the U.S. is not leading with pro-innovation regulation because then that digital channels and corridors of trade across the world are happening in other digital currencies, which the U.S. doesn't have to be in the middle, sort of, establishing trust.

Le Merle: Yes. Well, I do worry about it, but not as much as you might think because I do believe that American software engineers are the best in the world, and they consistently have demonstrated that. Now I do think there's a lot of great innovators in other places, in Europe, in Asia. There are many in India—there are many places in the world where there are great software engineers who know how to write great code. But America has been, and I believe still is, the world's greatest concentration of talent. And all we're really saying is “Government, please help us continue to maintain…”—we're early-stage venture investors. So, just to be clear, we back hundreds and hundreds of blockchain engineers that want to build software on top of distributed ledger technology and innovation. And they do great things with it. And those great things, on the one hand, some of them are well known like Coinbase and Kraken, and a lot of them you've never heard of, and they're coming fast.

Varghese: Absolutely. So, zooming up, taking out a decade or more to 2035. What can we expect? Any bold predictions?

Le Merle: Yes. Well, I don't feel that they're bold predictions, Lata but I think that this is the vision. Just go back to 2000. Remember how you did your communications and how you shared information and the devices you used and the formats you used. You were still probably using tapes, you may have transitioned to CDs and DVDs, you were using email, but it was not that great. Roll forward to today—I mean, don't forget the Apple iPhone wasn't even invented until the end of the zeros and we didn't have iTunes or apps until the end of the zeros. So, a lot of the innovation that we take for granted today is a relatively recent invention. That's called real-time free communications. It's easy to do, it's easy to use, and so is the same of every other content-based industry today.

Well, imagine that financial services was the same. What would that look like? And what it would look like was, you can transfer money to anyone in real-time, and you don't have to pay anything for payments. I think payments will become free. There won't be any friction. Retailers will not be complaining because they have a 3 or 4% margin and they have to pay one or 2% to MasterCard or Visa each time they enable the transaction. They won't be paying anything for payments, payments will be free, it'll be ubiquitous, it'll be real-time.

But then think about investments, right? Today we sort of have digitalized public equities, but it's not very good technology, it takes several days to settle and it's expensive and it's not very accessible for most people around the world. Very few people actually can buy and sell public equities easily. Well, imagine that 8 billion people have access to any investment in the world in a low-cost fractional way and they can transact in almost real-time at almost no cost. And so, investment markets become huge, liquidity becomes massive. And if we go back to what happened to public equities, we end up also with derivative products that are easy to create.

So, imagine everything, every asset in the world is digital. The state of today is most of the real estate, most of the funds, and most of the private investments are paper-based. Imagine, in this day and age, 2023, most of our investments are paper-based. So, by definition, they are slow, expensive and difficult. Well, now that's in 20.., whatever the year was, you said 2035. That is all digital. So, it is ubiquitous 24x7 trading, low-cost, easy to fractionalize, price discovery is hopefully efficient, and we can easily build derivatives and drive additional liquidity. That is the future world of investment.

Varghese: Great. Fantastic. On that note, Matthew, thanks again for doing this. I really enjoyed our conversation and that little bit of debate around sovereignty over currency and how infrastructure and all of that. I really enjoyed our conversation.

Le Merle: Thanks a lot, Lata. And for your listeners, what I do want to leave them with is what you said at the beginning. This is inevitable, we will have digital moneys, commodities and assets. And it will be beneficial for every consumer and user. It will be hard and it won't be easy. It will take time.

Varghese: On that note. Thank you again, Matthew, and back to you, Joe.

Kornik: Thanks, Lata and thanks again, Matthew. And thank you for listening to the VISION by Protiviti podcast. Please rate and subscribe wherever you listen to podcasts and be sure to visit vision.protiviti.com for all of our latest Future of Money content. And be sure to subscribe to sharpen your vision. Thanks for listening. I'm Joe Kornik.

Joe Kornik: Welcome to the VISION by Protiviti podcast. I'm Joe Kornik, Editor-in-Chief of VISION by Protiviti, a global content resource looking to the future to examine big themes that will impact the C-suite and executive boardrooms worldwide. We're discussing the future of money and its implications globally. And today, we're focused on Africa. We have three outstanding financial executives from across the continent joining us today, and I couldn't be happier to welcome in Charity Chanda Lumpa, member of the Supervisory Board of Oikocredit Netherlands, and VP of the Institute of the Directors of Zambia.

Charity Chanda Lumpa: Thank you so much for having me. Thank you so much.

Joe Kornik: Also joining us today is Sepo Haihambo, executive officer of commercial banking, FNB Namibia, and former head of global markets for Rand Merchant Bank.

Sepo Haihambo: Thank you for having me. Excited to be talking about the future of money.

Joe Kornik: And we're joined by Faith Khanyile, director of companies, and former CEO of WDB Investment Holdings, as well as the former head of corporate banking at Standard Bank Group.

Faith Khanyile: Thank you very much for inviting me, looking forward to the discussion.

Joe Kornik: Well, we've got, believe it or not, more than 75 combined years of finance, banking and business experience on this panel today. So, I'm really excited to get started. I wanted to start sort of from the macro perspective and talk about where we are today, with the many disruptors facing the financial sector right now, specifically in the fintech space, with digital payments and cryptocurrencies, and now, even generative AI is into the mix. What do you think it all means for the future of the industry?

Sepo Haihambo: So, look, I think three things come to mind. I think one, as money becomes more digital, you're going to have greater integration in terms of people's everyday lives and how digital payments assimilate into that. Right now, a lot of it is maybe very business-to-consumer, but over time, it will also become business to business. This is going to mean that as banks, we're going to have to look at faster speed of integration as innovation continues into our existing business models, which means continuous investment and capital expenditure to make sure that we're ahead of the curve, maintaining the existing legacy models, but also building into the future with the investment in technology. So, expensive from an investment perspective, but really going to require faster adoption, given the speed of change.

Faith Khanyile: Maybe if I may add to what Sepo is saying, I also think there will be opportunities to promote more inclusive finance, especially in emerging markets, like, for example, in South Africa and African continent, where we still have the big part of our population having challenges accessing financing, accessing credit. But at the same time, we do have a high adoption of, for example, smartphones. And now, also data is becoming more accessible and more affordable. So, I definitely think that AI, and specifically, fintech, can promote more inclusive financing. And also specifically for small businesses, which require credit, and the old traditional way of accessing credit via banks has been quite expensive and also just not that friendly to small businesses.

Charity Chanda Lumpa: The future I have in mind is trending towards what I think Sepo talked about in terms of digitization. It's more about convenience, making it convenient. I don't know what paper money will look like in the future, if at all, but certainly, digitization is going to run out the number of ATMs that we have because of that particular instance. And even payment systems themselves will continue to be more and more cashless as we go, so that we can see that there'll be more focus on convenience, more focus on inclusivity, and that will also require much more security in terms of our banking systems or whatever system we're going to use, to use money on the global platform, even locally, domestically.

Joe Kornik: Right. And I heard you all in some way, shape or form, talk a little bit about equity. I think one of the promises of the future of money is that it perhaps will create a more equitable global environment for the financial sector. Do you see that as a real possibility and one of the opportunities in the future?

Charity Chanda Lumpa: I think it's a yes and no question, because basically, leveling the playing field would be tantamount to people having the same opportunities, equal opportunities, and equal access to finance. Yes, as much as the level playing field will be there in terms of the mode of using this money digitally, there will be some areas where there'll be less equity than others. And especially when you look at the South-South divide, or the first world and second world, definitely in more African countries, we'll see that cash is more of a leveler than it is elsewhere, where you find that you can't even pay using cash, you have to have a card. You have to have a debit card or a credit card. So, it's a yes and no question, depending on where you are.

Faith Khanyile: Yes. And I think to add, I think we do have to also deal with some fundamental issues around the allocation of capital, because I think right now, we do have issues around the diversity, sort of like the profile of the allocators of capital and then the managers of capital as well. And I guess also within this, we've got still, sort of like old ways of really looking at who gets capital. So, I think technology, fintech alone cannot solve some of those fundamental issues around who is allocating capital, and to whom are they allocating capital. Because I think one of the biggest challenges that globally we still have is that we have not really had the kind of transformation that we need at that level of capital allocation, and capital and fund management, which then can trickle down to making sure that we then achieve equity in the access to finance.

So, I think we do need to deal also with that issue, because then, if we can deal with that issue, then we can hopefully see more equity in who is accessing finance, be it women or small businesses. But I think as long as we don't have that, and then also if we don't deal with some risk appetite issues, I think we will have a challenge. But I think obviously, fintech and technology or the digital revolution will definitely open up opportunities, but we do need to deal with some systemic issues as well.

Sepo Haihambo: So, what I would say is I agree with Faith and Charity that at the end of the day, digital money is still money, so it must be earned. And if the earning potential of the individual, the company of the country isn't enhanced, then it doesn't necessarily increase access. However, having said that, I think with the increase in digital solutions, you're going to have more straight-through processing and real-time settlement of transactions. And this being done by people's cell phones, et cetera has led to new credit models that perhaps wouldn't have been used even five years ago. I've read case studies where they look at the behavioral pattern of when a person buys data for their mobile plan. Are they responsible? Do they wait until they finished every last bit of data and voice time before they top up? Are they very prudent, and like when they’re 50% utilization, they go and they top up, and they’re using alternative credit models that weren't available to us before we had AI as an input into credit models. But ultimately, we still need to solve in tandem, for the quicker, better, faster solutions. We need to, in tandem, solve for the income potential of the individuals, the companies, and the countries, et cetera. Otherwise, you build for a very limited market.

Joe Kornik: I think we're all in agreement that money is going digital. Clearly, the future is going to be some sort of digital currency, which opens up all kinds of new issues potentially. I mean, there are opportunities, certainly, but then there are also some challenges.

Sepo Haihambo: A hundred percent cashless society would need—for that to be adopted, you need that to be government led. So, I suppose there are valid concerns around the privacy, and the conversation will probably be based on the analysis of the positives and the negatives on a whole, and on a balance, what society seeks to gain if we go fully digital with no cash, globally. I mean, like, for example, I think enhanced revenue—tax revenue collection, could be one of the possible gains. But with regards to the privacy concerns, what I find interestingly enough, is that this tends to also be linked to generational concerns. You find that the younger generations from your Gen Z's and below are not as concerned about sharing their data. There's more of an interest in understanding why their data is being taken and what it would be used for, but happy to share the data if there's understood benefit for them at an individual level. So, I think as time moves on, the adoption of fully digital money will probably get easier as the younger generations come into the active economic workforce.

Faith Khanyile: Yes, I think one of the other considerations is obviously, on regulation. I think governments really need to get their heads around how do they regulate this new unchartered territory to protect the privacy of the individuals, as well as, obviously, the data that is being shared.

Joe Kornik:You've all touched on banking, and we have so much banking experience here on this call, I just wanted to ask a little bit about the future of that sector and what do you see as the major challenges in banking.

Charity Chanda Lumpa: I think for me, banking especially is a very highly regulated sector, and that always causes problems for banks, especially when it comes to meeting some regulations that actually negatively or adversely impact the ability to provide great service to customers. So, regulation needs to be measured, because keeping up with these regulations can be a challenge. It's a cost, especially for smaller banks. So to overcome this, a bank needs to implement really robust risk management systems, and also invest in technology that supports their regulatory reporting, but that tends to be quite high. And really, having a proactive stance when it comes to compliance; it's quite a cost in terms of a bank to meet all these regulatory requirements. So, yes, for me, that's one area that I see is quite a challenge for the banking sector in years to come.

Sepo Haihambo: I would add that the significant cost of compliance is definitely a key item, and I agree with Charity on that. And then, you also have the cost of guarding, protecting your client's money because of the cyber risk investment that has to happen alongside with a large capital expenditure, that banks will continuously need to plow into their systems to make sure that they've got fast adoption of new technology as it is developed. It's making the cost of doing business relatively high. So, what I expect you'll see in the next 5 to 10 years is a lot of consolidation. I think we're definitely seeing that in the African banking context. So, lots of consolidation, fewer players, but bigger players because of the cost of business in banking continuing to escalate with compliance and investment in technology required.

Charity Chanda Lumpa: We have seen changing customer behavior and expectations in the face of what we just discussed, security and cybersecurity threats. So, with the increasing trend of technology, digitization of financial transactions or banking transactions, the risk of cyber threats, even data breaches, becomes a really significant concern for banks. And to keep their customership, they must now continue to enhance their security stance, their security measures, and implement stringent cybersecurity frameworks that are not cheap, they're quite costly, and ensure that there's also a very robust, what I would like to call “incident reporting systems,” to allow customers feel that, yes, when it does happen, the bank will be there to help them. But all these are actually quite costly investments for the bank.

So, collaboration is going to be very key between the banks, between regulators, law enforcement agencies in terms of combating cybercrime. And then, customer behavior also needs to be factored in because the banks need to transform their experience of their customers by providing seamless, personalized, and omnichannel services, because really, it's not just in the good old days you go to the bank and then you get served. Now you have to get your banking wherever you are, and mostly, it's on your handset. So, banks now need to adopt a more customer-centric digital strategy when it comes to leveraging the data analytics to understand customer preferences, behaviors, whilst ensuring that they're protected.

Faith Khanyile: Yes. And also, I think the other one is that definitely banks are being disrupted by fintechs. I mean, it's that being disrupted left, right and center. Yes. And you can see, banks are now entering the fintech area, and they've got this legacy systems and costs that are just difficult to dissociate from. So, I think that's definitely—I think that trend has been going on now for the past five to 10 years. So, that is a real reality. But you see banks partnering with fintechs or investing in fintechs. It's actually fascinating to see what's happening in South Africa at the moment.

Joe Kornik: So, Faith, play that out for me, over the next three to five to even 10 years, how do you see that sort of—those partnerships and those collaborations, how do you see those impacting the sector, the industry?

Faith Khanyile: I think the industry is definitely going to be totally, totally different, because it's not just the fintechs that are playing in this sector, we also are seeing telecoms companies also. Because they've got the customer, they've got the data, they really have got the cream that you want, to then offer financial services into this huge untapped market on the continent. So, I think it's going to be a totally—I think over the next 10 years, your traditional banks, like your standard bank, your net bank, they are going to be—yes, I think it's going to be very tough for them because I think they're going to be meeting competition from all angles, from their own clients, from their service providers. So, it's going to be quite different, and I guess the regulations must obviously keep up with the changes. I think what we're seeing in South Africa is that the regulations are a bit sluggish, but that is not stopping innovation. I mean, even retailers are offering financial services to their clients. So, it's going to be a totally, totally different industry over the next 10 years.

Joe Kornik: I wanted to talk about Africa a little bit. It wasn't too long ago that some were predicting that Africa could be the next China, but economic growth has slowed post-pandemic. But key demographic changes still signify a lot of economic opportunity, and since we've got three different countries represented here, I did want to ask a little bit about, from a financial standpoint, from an economic standpoint and its positioning on the global stage, where is the continent today, and where do you three see it going in the future?

Sepo Haihambo: Africa is a very diverse continent. I believe at any given time, there's always pockets of growth in the continent. What you do find, though, I think there is still lots of potential untapped opportunity in the continent. I think following COVID-19, with the supply chain delays that were experienced globally, this trend towards reshoring is making a lot of manufacturers and countries reconsider how they acquire raw materials, which I think is creating more direct demand for a lot of the raw materials that are produced in Africa, and also the move towards renewable with these rare minerals that are required for batteries, like lithium, as an example. So, I think from that perspective, there's definitely another growth wave that will come through in the African context.

And then you've got the added complexity of these conversations around the dollarizing trade in Africa, which then could also be very beneficial towards the value of these African currencies. And then, at the same time, you've got African leaders coming together, having a conversation about the Africa free trade continental agreement, which would enhance trade, South to South trade on the continent. So, I think those opportunities do exist, but it would be irresponsible for me not to highlight, though, that the issues and the challenge in adopting new technology is being outpaced by the speed at which we're developing our skills and infrastructure to be able to support that future. So, it's almost like the two things need to happen in tandem for that full potential of the continent to be realized.

Faith Khanyile: Yes. I mean, I think, to say, first one, the opportunities are definitely still there. And I think if we look at the latest AFDB Africa economic outlook for 2023, it's very clear that Africa has definitely been resilient. Again, here, we need to understand that Africa is not one country, but just a macro. The continent has definitely been resilient post-COVID, and the economic growth has recovered completely. I think for 2023, the growth is still projected to be just close to 4%, actually—I have not seen the latest IMF outlook, but that was from the AFDB. And then, for 2024, the continent is projected to grow by 4.3%. And then, we talk about, obviously, the population and the youth dividend, those opportunities definitely have not gone away. But obviously, I think we've had headwinds due to the war in Ukraine, which has led to high food and energy prices. Most of the countries in Africa are battling very high levels of inflation, then we've had the increasing interest rates in the U.S., and the strengthening of the U.S. dollar have definitely impacted those countries that have borrowed heavily from, using U.S. dollars. But I think the key opportunities right now, actually, that we need to leverage as the continent revolves around what now is being termed the “green economy.” And then, I mean, the numbers are just staggering. I mean, apparently, the opportunity ranges anywhere between $2.6 trillion to $2.8 trillion that is required by 2030 to take advantage of this green economy. Anywhere from investing in renewable energy, investing in water infrastructure, obviously, health and education, are still big opportunities on the continent.

Charity Chanda Lumpa: Africa is the happening place. I think all major developments will take place in Africa, if I can say so. Why? Because we have a very youthful population in Africa, a growing middle class, and we have abundant natural resources, increasing urbanization, which may be good or bad, depending on how you handle it. All these actually are significant opportunities for economic growth in the next five to 10 years. We need to make progress as Africa at both country and continental level in terms of infrastructure development, because as we have seen across Africa, many countries are investing heavily in infrastructure development, which will include energy transportation, the green economy that I think Faith was just referring to, and telecommunications.

But we also need to improve connectivity to facilitate trade and ensure that we attract direct foreign investment. When you look at Africa right now, just across from Zambia to Malawi, I had to go to Johannesburg. Okay? So, that interconnectivity is not dead. For me, I cannot jump on a flight to then go straight to Nigeria, for example. I have to hop onto another flight, get to another airport, and sometimes even go to Europe to come back down to Africa. So, interconnectivity needs to be sorted out, especially when it comes to regional integration. In order to boost our inter-African trade and increasing investment flows, that will foster economic cooperation.

If we can also ensure regarding renewable energy investments, that this focus in Africa should be driven by the need for sustainable development in terms of wanting to mitigate adverse climate change developments. As you know, we have vast renewable energy potential, especially in solar, wind, and even hydroelectric power.

So, I think Africa is the happening place. Really, our economic trajectory is going to be influenced by a lot of combinations, such as domestic and global factors, and with the right leadership. I can't overemphasize that. We really need bold leadership that will look inside Africa for African solutions that will be provided by Africans within Africa, with as much help as they can get. But really, we can't keep running to the first world for help when we have significant resources, both human capital and otherwise, on the continent, that can come up with African solutions.

Joe Kornik: Faith, Charity, and Sepo, thank you so much for your time today. I really appreciate the conversation.

Charity Chanda Lumpa: Thank you, Joe. It was really good talking to you.

Sepo Haihambo: Thank you so much for the opportunity.

Faith Khanyile: Thank you very much for the opportunity. Thank you.

Joe Kornik: And thank you for listening to the VISION by Protiviti podcast. Please rate and subscribe wherever you listen to your podcasts, and be sure to check us out on vision.protiviti.com for all of our content around the future of money. Thanks for listening. On behalf of Faith, Sepo, and Charity, I'm Joe Kornik. We'll see you next time.

Regulation, risk and reward with HSBC’s Chief Compliance Officer, Asia Pacific

Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource examining big themes that will impact the C-suite and executive boardrooms worldwide. Today we're exploring the future of money and I'm excited to welcome in Darren Furnarello, Chief Compliance Officer for HSBC Asia Pacific. Darren has held several senior level positions within HSBC including roles in global transaction banking and trade finance. Darren, thank you so much for joining me today.

Darren Furnarello: Thanks, Joe. I'm really happy to see you today.

Joe Kornik: I'm pleased to welcome in my colleague, who will be interviewing Darren, Protiviti Managing Director Adam Johnston, who serves as the Country Market Leader for Hong Kong. Adam, I'll turn it over to you to begin.

Adam Johnston: Thanks, Joe. Welcome again, Darren. It's always a pleasure speaking with you and I'm very excited to dive into our topic today, the future of money through the lens of compliance.

As the Chief Compliance Officer for the Asia Pacific region, you lead a large team of compliance professionals across some 20 businesses and 18 jurisdictions overseeing the compliance function for HSBC in Asia Pacific, ensuring compliance with laws, regulatory requirements, policies and procedures. Frankly, you have a lot on your plate. How do you prioritize all those various responsibilities and which ones require the most attention right now?

Darren Furnarello: Thanks, Adam. Thanks for having me. I'm also looking forward to the session today. Thanks for the intro. You certainly make the role sound huge and important, so thank you for that.

Let me just perhaps frame and give some context just around sort of the responsibility and then I'll try and tackle that question in order. One of the key things to help me do my job and to execute those responsibilities is obviously having a robust compliance framework, which really consists of globally applicable principles, but also making sure that there's enough adaptability in those principles to allow for local regulatory requirements and nuances. Another key aspect of that is also making sure that we have global policies which are clearly comprehensive and detailed and provide clear direction and guidance to each of our business’ unique risks.

Of course we also have horizon-scanning tools which help us identify emerging risks. This really helps us to stay informed about what risks are emerging. It gives us great insights to regulatory trends and changes. We also look at macroeconomic and geopolitical issues and events. This also gives us great insights in terms of what we think the potential impact could be to our business as well as our compliance controls and our framework.

Just to maybe bring that alive a bit, I'll use a good example of all the risks that we've seen that have stemmed from the Russia-Ukraine War. This has been unprecedented for the financial services industry where we've seen an unprecedented level of sanctions as well as activities-based sanctions which has been very challenging for financial institutions to manage and to comply with. This is predominantly because some of those activities-based sanctions and restrictions—banks have never designed specific controls or measures to be able to comply with those. To some extent, we have to have agility to be able to implement new controls and frameworks to ensure that we are managing those specific risks as an example.

But if I were to also kind of just put the Russia–Ukraine war aside, some of the other risks that we continue to monitor and do require additional attention is things around asset quality. This is obviously given the backdrop of the macroeconomic environments as well as challenges that we see across the credit landscape. This means that we're conducting regular health checks on our counterparty exposures, which also include non-bank financial institutions as part of the portfolio review.

We clearly also focus quite heavily on operational resilience. This always requires ongoing reviews, testing and enhancements, particularly in the spaces around cybercrime and cyber security, data privacy, even third-party risk management, including things like cloud service providers etc. Of course, financial crime is always up there in terms of the key focus. This always requires constant tuning and enhancements given we've seen pretty advanced technical advances around the digital and crypto space, introduction of global wallets and digital payment platforms. These all bring new risks for a bank like ours to manage and to mitigate, and we also need to look at what enhancements we need to make to the overall AML framework as well as our monitoring capabilities around this.

Lastly, I'll just mention obviously green and sustainable banking has clearly come into sharp focus in the last year or two. We are working very closely with our businesses and regulators around climate risks, around climate risk management processes and governance, including thematic reviews on green products and greenwashing related risks. Many of these still require ongoing work, particularly from a regulatory perspective and the supervision that regulators want to put around climate-related risks as well as clearly defining some of those risk taxonomies.

Adam Johnston: So as you look out over the next three to five years, do you see that changing? What do you think will be the biggest issues facing compliance officers in the banking sector in the future and how do you prepare to meet those challenges?

Darren Furnarello: Yeah, that's a great question and to some extent I would say the future is almost already on us and we're already seeing a number of changes which are happening now and will continue to happen in the future. So undoubtedly, we will see significant transformation in the banking sector, which will be undoubtedly again driven by advances in technology, evolving customer expectations, the changing dynamics of geopolitics, the global economy and all of these will require some level of regulatory change or enhancements.

Some of the key things that I see will be around obviously digitalization, open banking, artificial intelligence and robotics, workforce transformation, cyber security, and as mentioned, sustainable banking as well as regulatory technology. Just to cover a couple of those off, digitization—as I've already mentioned, we’re already seeing a big acceleration around this through a number of banking services and this is already started from simple account onboardings through digital platforms, the use of Zoom and other identification platforms, right the way through to mobile banking and to online banking platforms. Advances in this space will definitely, definitely continue and we will see this take and become more prevalent as more and more customers are getting more comfortable and turning to digital channels for their banking needs.

I think open banking will further transform banking services, really enabling those third-party developers to access customer data. Of course, this will need to be with customer consent, and we’re definitely seeing acceleration around the build out of innovative apps and services in this space. This will obviously create more competition within the industry and will certainly force, as I see it, more traditional banks to innovate faster or they will simply be left behind in terms of keeping up with the changing demands of customers as they move to more mobile and online banking solutions.

The adoption of AI and robotics in banking operations I think will see a significant increase in the coming years. Banks will generally use these technologies to improve the way we do risk assessments, fraud detection, even customer service. We can see this perhaps for instance through the use of sort of AI chat box which we’re seeing significant advances with especially technology like ChatGPT and others, which still have question marks in terms of the ethics around it, but we’re seeing these big technological moves.

So I also think these technologies will be used for various operational tasks simply to help the banks become more effective and efficient, but also hopefully improve the overall customer experience when dealing with banks.

Lastly, I would just mention that we're also already seeing an increase in regulatory complexity, and banks will need to invest significantly more, in my opinion, around regtech solutions. These solutions will certainly help banks to manage regulatory requirements more effectively and efficiently and help drive some of those efficiencies to reduce the overall cost of being compliant with regulations. And hopefully with the use of these technologies it’ll also reduce the risks and the cost of non-compliance. We've seen significantly over the last few years that regulators have stepped up quite spectacularly their enforcement actions over the last few years for financial non-compliance and these have resulted in very hefty fines and penalties in the industry.

I'm also seeing a trend where technical compliance has to be a must for banks and other institutions. As regulators become more sophisticated themselves with the adoption of vetted data, analytical tools and AI, they will be holding banks to technical compliance, which means banks need to get the basics right, let alone start thinking about how to manage some of the risks of the future.

Adam Johnston: With all that being said, how do you balance digital transformation—all the emerging technologies from AI to cloud as you mentioned and the potential efficiencies that it brings—how do you balance them with data protection, security, risks, and regulation?

Darren Furnarello: Look, most banks already are embarking some form of digital transformation in one shape, form or another. From my perspective, strategic planning is absolutely critical here. Management needs to have a very clear strategy, in my opinion, around sort of the digital transformation programs. This really needs to be driven by a clear understanding of what technology exists, how that can be integrated, and what are the benefits that will bring to the bank.

For example, what are the benefits of using AI machine learning to improve operational efficiencies or enhance business priorities to help with risk mitigation strategies etc.? When we embark on digital transformation and the application of bringing in a new technology, we look at this through a number of lenses. One of the key lenses we do look at this through is through our customer lens. So regardless of the technology that we're going to deploy, we need to make sure that we understand, how does this actually improve the customers’ interaction with the bank? Are we improving the way we're servicing them? Are we making their touch points with the bank more seamless? Are we improving the overall experience of the customer as they interface with different parts of the bank or different products and services? How are we actually enhancing the overall customer protection around their data and personal information?

So directly correlated to that is, obviously, as you start to deploy some of these things, data management and privacy become critically important. So even when you think about the adoption of artificial intelligence or cloud technologies, these both demand very robust data management strategies, which means that we need to adhere to data privacy regulations, which we know continue to change. We're already seeing how tricky and how more costly this has been done, especially for global and foreign banks, as we see more data localization laws which we need to manage and that does create a bit of a challenge for us.

Lastly, I would also say a key aspect to which we look at this through is the lens of business alignment. Does the adoption of these new technologies, are they providing business value? Does it align to our strategic business objectives? I'm always keen to ensure that as we deploy and use new technology, it does serve a practical purpose beyond just keeping up with the times.

Adam Johnston: As somebody who spends a lot of time thinking about standards and procedures to ensure compliance programs detect, prevent and correct non-compliance with laws and regulations, I'm curious to hear your thoughts about where you see the regulatory environment evolving over the next several years. Are there changes that you expect on the horizon?

Darren Furnarello: I'm going to answer that in maybe a strange way. To some extent the future is already here and some of the things that I covered off earlier —we are really seeing how this and the advances in technology are shaping the future of regulation. So some of it we anticipate and certainly I’ll give you a few thoughts of where I see it going. Again, I would say, given the advances on digital and cyber security, we will absolutely see that this will become key in terms of deploying digital platforms and key around enhancing operations. So we'll definitely see more regulation from regulators and I think particularly there'll be definitely an emphasis around cyber security and how we're managing those.

We will definitely see more regulation around data privacy. As I've mentioned, we're already seeing some of this taking hold and more and more governments and countries implementing these local data privacy laws, which really demand for data to be managed onshore and not to be held into these global data lakes and global databases. So there will definitely—I think we'll see evolving regulation around this and I think it will be more sort of defining of the standards and the protocols that we would need to enhance and implement to protect customers, to protect customer data, and to some extent, from an operational resilience, to protect the banking system from cyber attacks, ransomware attacks through the uses of new and more advanced technologies which can be hacked and may not have same security protocols as some of the more traditional banking platforms.

I think we're also seeing quite significant advances just in terms of central bank digital currencies. I think these again are new and will be complex developments. This will definitely necessitate new banking regulations, from our perspective. I think as these central bank digital countries also gain traction and adoption, regulatory bodies will need to think about what is the legal framework around that? What is this technical framework around to manage the associated risks with that, but not just around managing associated risks, but also how they enhance the potential benefit of the introduction of these sorts of products.

I think what I'm also seeing is there's definitely a lot more of non-traditional players are entering the financial services market and these are things like fintechs or big tech firms. I think we'll see quite a lot of regulation coming out to make sure that they are equally regulated. Maybe not to the same extent of traditional banks, but there will be regulations extended to them to make sure that they're adhering to AML-related requirements, data requirements, cross-border type requirements. So in this space I think there will be increased regulation; also predominantly just to level the playing fields against traditional banks. Otherwise, you do put a huge emphasis on traditional banks trying to cover both these big tech firms and fintechs through the provision of their banking services where you could see regulators kind of saying, “Well, we rely on the infrastructure of big banks to do that for us.” We've been strongly advocating that we think more regulation is required in this space, in particular where we are giving out virtual banking licenses as well.

I did mention sort of mobile banking before. I think we're really seeing with the introduction of mobile banking and online banking services, this is already, I guess, through digital finance blurring geographical boundaries. So I think we'll see more regulation certainly from around the world where regulators will need to pretty much collaborate more frequently to manage some of the associated risks with cross border transactions.

Lastly I'll mention and maybe to finish this question a bit more controversially, is I think there will be regulation on AI/machine learning. I think these technologies will definitely in the future transform the way banks operate, how they manage customers, customer data, services and operations. I think these technologies, as they progress and become more mainstream, regulators will be looking to design and to address some of the pretty big open questions out there around the ethical implications of some of the algorithms and all the potential biases in these algorithms. What does that do? Are we susceptible to legal and potential [privacy] violations? Is machine learning and AI making decisions and where do we rest the accountability for some of these?

Adam Johnston: Thanks, Darren. That's very comprehensive. We've covered a lot of ground today. I do have just one final question to close on, and that is if you do think about the future of money from a compliance lens in the distant future, say beyond five years, five to 10 years, what's the one thing that concerns you the most?

Darren Furnarello: Again, a great question. I think the risk of future money will definitely be we're moving to virtual currencies, crypto, crypto assets, tokenization. I think this is the one thing that generally will keep me awake at night and that's predominantly because it's unregulated at the moment. We've already seen some issues with Ponzi schemes in the digital and crypto space and I think it’s not very clearly understood by customers and I think there's a lot of vulnerabilities there where people could be caught into this, trapped into this where customers could be taken advantage of. I think this also opens up tremendous risks for banks in terms of, really around the financial crime risk space, because a lot of these digital platforms, digital assets, tokenization, or whatever it may be in the future will definitely make it more difficult for regulators, banks and law enforcement to really enforce some of the AML rules and regulations that the bank holds themselves accountable to today.

So I think there needs to be significant advancement just around how that is regulated but also significant upskilling which we need to do from staff, from our own internal operations, to be able to kind of —how do we effectively manage these new potential risks that will come through all of these digital platforms, because people are moving away from more traditional banking.

Even if you think about the mobile phone, 10 years ago what it could do versus what it could do today, the technical advances that you can pretty much run your whole life on your iPhone or your smartphone. I think the future generations will want to do all of their banking, all of their finance, all of their transactions via these mobile devices and platforms and that does create a plethora of risks and issues that we need to think about, to manage, to safeguard customers, make sure that they're not being taken advantage of, make sure that banks and systems are not being held to ransomware, which we've seen in recent months and years.

It’s a very big question, Adam. There's a lot of components there and a lot of things. I think as these things evolve, hopefully they evolve quickly but hopefully they don't evolve so quickly that we don't have time to manage and mitigate the risks.

Adam Johnston: Yeah. Absolutely. Darren, thanks again for your time today. We covered a lot of ground. Very, very insightful and we really appreciate you spending the time.

Darren Furnarello: It's my absolute pleasure and again, thanks for having me.

Adam Johnston: Back to you, Joe.

Joe Kornik: Thanks, Adam and thanks, Darren. Thank you for watching The VISION by Protiviti interview. On behalf of Darren Furnarello and Adam Johnston, I'm Joe Kornik. We'll see you next time.