Rules and regulations are meant to protect against the failings of other human beings. For example, automotive laws such as speed limits, turn signals, and limits on driving while intoxicated have been designed to protect against dangerous drivers, not dangerous cars. Self-driving cars brought new risks that legacy rules never considered.According to Brian Brooks
, the Acting Comptroller of the Currency in the United States and former Chief Legal Officer of Coinbase, the future of banking is headed down the same road. Current banking regulations seek to regulate bankers, not banks, such as having officers oversee responsibility for the safety of the bank.
Blockchain technology and decentralized finance are delivering banking services with no human intervention, interaction, or intermediation. These "self-driving banks" are new, but not small, are active today, and present the same challenges – and opportunities – as self-driving cars. Federal regulators should spend time to determine what a regulatory scheme should look like in this new world. Certain questions begin to arise.
Could regulators ensure fair treatment of customers by such a bank? Yes. Most bias and compliance issues are failures of hard-wire algorithms in human brains.
Could regulators properly examine a bank that exists only as software? Yes. Examiners can read the open-source algorithms that make critical decisions regarding deposits, pricing, and credit to determine whether they comply with legal requirements.
Could regulators ensure banks properly serve their communities? Yes. Greater efficiencies would free significant amount of capital that would be allocated to operating costs. Better compensated and value-added jobs may also be added as a societal benefit in the long-run.
Could the OCC even grant a national bank charter to open-source software? No. The current law was drawn up in the early 20th century and assumes charters can only be issued to human beings. But those antiquated rules should be revisited.
As Brian Brooks concludes, how different would banking be today if regulators, banks, and policymakers were as bold as carmakers 10 years ago?