Hot Take Alert: Are Banks Tacitly Asking for More Regulation to Squeeze Out Smaller Competitors?

There is nothing in this world quite like a hot take.

For the uninformed, a hot take is an opinion on steroids. Most commonly seen in sports, hot takes are brash, unapologetic and controversial. Commonly found on social media, hot takes are the kind of statements that make you scratch your head and go, "Really?"

So, naturally, I wasn't expecting to come across a hot take while attending the Toronto Financial Information and Technology Summit 2016 this week. Conferences like these, filled with educated, logical people aren't exactly the breeding ground for hot takes.

But I'll be damned if I didn't find one. There it was, staring me dead in the eyes, via sli.do:

The takes are ??? at @WatersTech #tofis pic.twitter.com/A3ZGHCjLrd

— Dan DeFrancesco (@dandefrancesco) June 7, 2016

"Have big banks implicitly encouraged over regulation and reporting as a way to handicap their smaller counterparts and push them out of the business?"

As far as hot takes go, it doesn't get much prettier than that. It's the kind of question you laugh at the first time you read it, but then you actually start to consider it, which is the epitome of a perfect hot take. Every hot take holds the slightest bit of truth.

Break it Down

So let's digest this unexpected question of ours. At first glance, it looks ridiculous. Big banks are constantly complaining about regulatory fatigue. I have yet to attend a conference where firms haven't brought up the strain of regulatory requirements on their budget.

The story I wrote last month about Steve Luparello of the US Securities and Exchange Commission (SEC), who spoke at Sifma Ops 2016 about the constant stream of regulations, was one of our most-read stories for two weeks straight.

The bottom line: Big banks, across the board, are always looking for some relief when it comes to meeting regulatory requirements.

So when you consider all that, saying that banks are actually asking for MORE regulations seems crazy.

...or does it?

Get an Edge

It doesn't take a genius to recognize financial firms aren't shy about trying to get any competitive advantages they can. It's also fair to say that big banks are better suited to handle complex reporting regulations than their smaller counterparts.

Keeping up with regulations is hardly easy work, but banks, with their massive compliance departments and large budgets, can do a better job of navigating the rules than smaller firms. And while I'm sure most firms wouldn't outright say they want more reporting requirements, I could see a situation where they wouldn't mind spending some money on regulations if it would lead to thinning the herd.

As the old saying goes, you've got to spend money to make money. Look no further than the very conference I was at.

I wrote about former Blue Cross Life Canada CEO and president Jim Gilligan, who outright said he believes there will be greater regulatory oversight placed upon fintechs. While it's not a direct correlation, as Gilligan is asking for compliance requirements for an unregulated area as opposed to more regulations across the board, the reasoning is still the same.

Gilligan said regulating fintechs would ensure a "fair game" between upstarts and big firms and added that large insurance firms have tended to "drift along" in recent years, allowing smaller firms to break into the space.

His point was based on a speech made by TD Bank CEO Bharat Masrani at the bank's annual meeting in Montreal in March in which Masrani called for regulatory oversight of fintechs. Masrani said the reason he was asking for regulatory action was to protect customers and their data, however, Masrani and every other CEO at a big bank is certainly concerned about competing against these new, agile upstarts.

And so, when you start to think about it, suddenly that hot take doesn't seem so hot anymore.

This week on the Waters Wavelength podcast ─ Episode 20: CAT, Unbundling Research, June Features

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