The Architects: Reimagining The Financial Future

Smart Compliance: GenAI’s Role in a Modernized Financial System

• TWIF

Share episode

In this episode, Nik Milanović (TWIF) and Kabir Kumar (Flourish Ventures) co-host a discussion with Snigda Kumar, co-founder and CEO of @Brico, and @Chris Brummer, founder and CEO of @Bluprynt.  about the evolving landscape of fintech, particularly focusing on compliance challenges and innovative solutions. They explore how technologies like AI are transforming compliance processes, the importance of regulatory frameworks, and the role of startups in shaping the future of financial services. 

The conversation highlights the need for a proactive regulatory approach that can adapt to emerging technologies and the significance of building a compliance infrastructure that supports growth and innovation.

As Kabir puts it, you can’t unlock the future of finance without modernizing the regulatory pipes — and Brico and Bluprynt are building exactly that. If you care about regtech, AI, crypto policy, or the future architecture of financial systems, this one is a must-listen!



Flourish Ventures is an $850M global early-stage venture firm that backs entrepreneurs transforming financial systems for the better. Its portfolio spans more than 100 companies across the U.S. and emerging markets. The firm also supports innovators shaping policy, media, and research to accelerate lasting change in financial services.

This Week in Fintech (TWIF) is the largest fintech community in the world, presenting news, podcasts and newsletters from around the world. Subscribe to our newsletter to stay up to date on the latest in news opinions, and all things financial technology.


Snigda Kumar:

Yes, like you know, everyone talks about deregulation, but I think it's not really deregulation. It's just a little bit more of like the state-by-state stuff is not changing. You might dismantle CFPB, but each state is now coming up with their own like version of CFPB, which is making things a lot more complicated across all 50 states. So I would actually argue that it's leading to like more state-by-state regulation than like, you know, the federal level deregulation. And then even with like genius acts and things like that, which is supposed to make things a little bit more streamlined, it is still another regulatory framework that you have to comply to. So it's not like you can just like do whatever you want. There are real frameworks and it's actually giving more clarity to people.

Disclaimer:

The views expressed in this podcast are the speaker's own and are not the views of This Week in FinTech or any other person or entity. The content provided in this podcast is for informational purposes only and should not be construed as legal, business, tax, or investment advice or a recommendation, solicitation, endorsement, or offering by me or anyone else for the sale, subscription, or purchase of securities or for investment advisory services of any kind.

Nik Milanovic:

Awesome. Welcome back, everyone, to this week in Fintechs podcast. You're joining us for our special series that we're doing in partnership with Flourish Ventures. If you don't know Flourish, they're a leading early-stage global venture capital firm with $850 million under management that deploys patient capital with a long-term perspective to help foster a fair and more inclusive economy. They partner with more than 70 global fintech founders and 18 ecosystem partners that include us, along with other industry thought leaders in research, policy, and regulation. I'm joined today with a member of the Flourish team and two incredible founders. And we have a very efficient interview and episode coming up for you. And so I will let them give their quick intros, but just by way of background to know who you're talking to today, we have Kabir Kumar, who is part of the founding team at Flourish Ventures, Sigda Kumar, no relation, who is the founder of BRECO and also a member of the Forbes Business Council and the New York Department of Financial Services by Angel Innovation Advisory Board. And finally, Chris Brummer, never a bummer. His resume is too long for me to fully read out, but I'm going to give you a couple of the quick highlights. He is a 16-year professor of financial technology at Georgetown University Law Center. That goes back before the term FinTech even existed. So we're not going to give you a hard time for not changing it from financial technology to fintech on your LinkedIn. He is the founder of Blueprint. He is the founder of the FinTech Foundation. He is the founder of DC FinTech Week. He's probably the founder of other things that I haven't even heard of yet, but we will find out on the show. Thank you all so much for joining us. I would love it if we could get kind of your version of a better introduction before we jump into the topics. Kabir, maybe we can start with you.

Kabir Kumar:

You nailed it. I'm a partner with Flourish. I'm based in DC, investing companies, but also drive our ecosystem efforts. And we have an amazing sort of group of entities that we work with globally on that front.

Chris Brummer:

With the description of things as efficient, Chris, friend of Kabir is pretty efficient and uh admirer of NEC.

Snigda Kumar:

Nice. Well, I I will also like add in that I uh I've actually started working in fintech before fintech was called fintech, digital financial services. Um so even like you know, more predate uh that. But uh but yeah, I mean I'm the CEO, co-founder of Brico. We help automate licensing, state-by-state compliance for any company that is trying to launch a financial product in the US.

Nik Milanovic:

Well, everybody on this call is too humble. There's so much fintech firepower that's joining us on this call today, and we'll hopefully get a little bit of a better sense of who you're hearing from later on in the show. But I want to just preview for everybody what we're gonna be talking about. This is either your favorite or your least favorite topic in fintech compliance.

Snigda Kumar:

The thing that I live for every day.

Kabir Kumar:

Well, you know, I think it's definitely my favorite topic. You know, I think that just as AI, blockchain, and all these technologies are changing how finance works, they're also changing the regulatory stack. And if we actually don't change the regulatory stack, I don't think we'll get all the advantages we want from the changes in the financial system through these technologies. And these guys are actually building at the front edge of this revolution. And that's why I'm very excited that we are able to chat with them rapid fire today. In fact, I'm gonna jump in. I'm gonna ask Snickda and she had already started talking about it, but she's building Brick O, it's at the intersection, StickDad, uh finance, data, AI. So, we from your perspective, what's broken in compliance today? And sort of what were your experiences that got you to this point where you are spending your life in what some consider one of the most boring areas of financial innovation?

Snigda Kumar:

Yeah, you know, like I mean, high level, what's broken in compliance is like, you know, we're still stuck in thinking of compliance as a checkbox and almost have like a legacy system which has different data streams, a lot of like, you know, delayed rule interpretation, large cost centers of like, you know, headcount, and just like hard to basically do anything which can grow the business without really like, you know, trying to come across as a friction. And when I was working at Digit, uh, which was like, you know, a new bank uh savings, new banking product, uh, we basically saw this entire challenge ourselves. Like we were trying to get licenses and we got a one and a half million dollar bill from a law firm. And we were like, well, what why is this so high? Like, what are you gonna be doing? What are we gonna be doing? Are you gonna be helping us set up all the reporting? And they were like, no, we're just gonna help you navigate the regulatory ecosystem of 50 different states, and that's why we're gonna charge you that much money. And at that point, I was like, wait, just for this, you're gonna charge us like a million and a half, and I'm still gonna be doing all of this work. And that was actually the beginning of why we started Rico. But the day I actually decided that this is a problem that you need to really solve is the day I spoke to this cross-border payment lead, and he was like, I secretly wish that someone fired me from this job because it's so painful and so hard to do the reporting. Nobody gives me the data when I want the data, everyone is delayed, and this is like the most stressful that I've stressful time that I've ever had in my entire career. I'm like, okay, if the pain is so deep that people want to really get fired from the job, then this needs to be fixed. And that's what drives us. Like we want to fix how broken this entire system is and you want to make it actually more joyful for people to do compliance and licensing.

Chris Brummer:

You know, it's really interesting because usually, as a securities law professor, when you think about securities law, it's about compliance. But when you think about what securities law means, it's ultimately a communication channel, right? It's like, how do you speak to people? What are you supposed to say? How are you supposed to say it? How complete? So, you know, sometimes when I think about compliance, I'm not really thinking about it as what rules or even though in securities law forms there are plenty of check boxes. I'm really thinking about like what is the language by which companies communicate? What's the language through which founders communicate with investors, with potential people who buy their products? Like, what do what do those communications mean, not only in terms of how do you make sure that financial products have liquidity, but also just how people function and and operate with one another. And I think that you don't always think about compliance that way. You know, I also think about compliance as the architecture through which a company scales, right? It's not only how a company encounters frictions, but it's almost kind of like the, you know, to paraphrase the great postmodern philosopher Biggie Smalls, you know, a step-by-step booklet for you to get on terms of how do you scale your particular fintech or your particular financial service. And so I don't really think it's just check the box. It kind of serves a number of functions from how do you communicate to how you scale.

Nik Milanovic:

I'd be curious to hear a little bit more just for our listeners about Blueprint and Brico. Like having identified that compliance is a major issue for fintech founders, especially those who don't come from a financial services background, you know, what is Blueprint and what made you decide to start it? And Sega, I'd love to hear the same for Breakout.

Chris Brummer:

Blueprint is a platform that enables companies to scale and comply with regulatory rules in a seamless manner. So we translate tradfly rules in a way that an on-chain financial market participant can understand, can embed, and can even use and pre-program its own operating systems online. Uh we started from a very basic idea that disclosure rules, and we were just talking about communications, that disclosure rules were totally not fit for purpose for a company that's operating on-chain or for a crypto native company. You know, a lot of the disclosure requirements are about board governance, but not node governance, or you know, you're not talking about the kinds of things that make on-chain assets both valuable, and you're not necessarily identifying where risk comes from. And also those traditional requirements were not plugged into any on-chain system. So our sort of evolutionary path has involved thinking through how you can meet regulatory requirements. You know, we turbo tax certain kinds of regulatory documents. And then how can you take the data embedded in those documents and package them in a way so as to facilitate easy compliance with different regulatory expectations. And that world involves everything from uh, you know, how do you consummate a transaction in a trade to what we've recently announced as our know-your-issuer solution, which basically makes your token TradFi ready. Like just because you can do something on DeFi doesn't mean necessarily that a bank, a regulated financial institution is going to be able to custody that token, to accept that token. So what can you do? How can you automate certain kinds of processes to enable the onboarding of that crypto asset into the TradFi world?

Kabir Kumar:

I think that you use TurboTax as a reference point too.

Snigda Kumar:

Exactly. Exactly. You're making the boring sexy by uh using that example. But uh, I mean, at Brico, I think if you think about it, any financial product in the US that is not a bank needs to be licensed in all 50 states to provide that product nationally. So prior to Brickco, people really had like, you know, two main paths. Like, you know, one path was you get your licenses, which was extremely expensive, very manual, took like ages to figure out internally, or you would basically go and partner with a third party. Very soon to realize that a third party partnership is actually not allowing you to own your own risk, not allowing you to like go to market as fast as you want, not allowing you to own your unit economics. What we're really trying to do with Brico is no matter the path you have to choose, you should not be limited by, well, what's the fastest way to do that, or what's the cheapest way to do that, or let me just do that, if even if that's not right for my business. We're actually enabling any financial product business to own their destiny by owning licenses, making it cheaper, making it faster, making it more automatable, and also making it just like a source of truth for you so that you can do more on top of the licenses and not just like use licenses as like a way of, okay, I've launched a product, now I'm done with it. You can do reporting, you can do orders, you can do exams, you can actually, like what Chris was mentioning, you can start creating an infrastructure of like truth and visibility across your product and know what you can now do that you have these compliance and licenses figured out, and what revenue streams that it unlock for you in different states. So that's kind of what we're really trying to do is like, you know, kind of unlocking the potential for any company to own their destiny when it comes to like product design, unit economics, going to market faster.

Kabir Kumar:

Nick, you know, I get to talk to Chris and Snigda frequently. So I'm very delighted that we're doing this series so that others can hear from them because as you can see, they can think about the broader system and not just narrowly about what they're building, and it's very exciting. Chris and Sigda, why now? Why are you building Chris Blueprint now, uh Snygda Brico now? What has changed? Is it is this technology ready? Is there some sort of broader shift taking place uh in the political landscape, policy landscape? In fact, we keep hearing we are entering a period of extraordinary deregulation. So one might question, is this the right moment? And is there something happening culturally that suddenly compliance is I'm just wondering why now for both of you? And maybe Sigda, you can go first.

Snigda Kumar:

Yeah, I'll I'll start. Like a lot of why I started and the time I started was like all the craziness that was going with like banking as a service. Because like, you know, I personally had experience like, you know, doing that work and then realized that, okay, this is actually hampering a lot of the things that you want to do at digit. It was making things slower, marketing reviews were taking longer, we couldn't do funds slow the way we wanted. And that's actually what like led us to the path of, okay, let's just get our licenses. And then that like whole regulatory environment also became very intense with like, you know, we everything we know about like Evolve and Synapse and like you know, things like that. A lot of like smaller startups would not even now get the ability to partner with like, you know, financial companies. And even larger companies that were partnered with these banks were under like major stress. Like, you know, Mercury Bank was like an example of that, where you know, it was under major stress because they didn't know what's going to happen with Evolve and their customers. So that was like the first reason why I got started the time I got started. And the second reason was also this emerging AI, which historically you couldn't automate a lot of professional services. Now we can. Like there's also that aspect of like, hey, this could not have been done 10 years ago or even five years ago. Now we can do that with like a bunch of AI automation agents. And then finally, there's this also like, you know, people have learned, like, you know, with the whole Cryptocrass, FTX, the Bass, and like, you know, a bunch of different things, people have really learned that you cannot skirt the compliance with regulation. And sometimes it's actually good for you to have some kind of framework. And that's another, like, in a cultural shift in terms of like companies. A lot of the customers who come to us, you know, they haven't even like even finished raising their seats sometimes, and they're like, I want to get all the licenses in all 50 states, partly because you make it so easy, but also because that's like the culture of I need to do this right from the beginning, otherwise, this is gonna like come back to bite me in the ass later. Um, so that's like one big reason of why now. And yes, like, you know, everyone talks about deregulation, but I think it's like it's not really deregulation. It's just a little bit more of like the state by state stuff is not changing. You might dismantle CFPB, but each state is now coming up with their own like version of CFPB, which is making things a lot more complicated across all 50 states. So I would actually argue that is leading to like more uh state-by-state regulation than like, you know, the federal uh level deregulation. And then even with like Genius Act and things like that, which is supposed to make things a little bit more streamlined, it is still another regulatory framework that you have to comply to. So it's not like you can just like banana republic do whatever you want. There are real frameworks, and it's actually giving more clarity to people. And that's what makes it fun to build a compliance business right now, because you have the technology, you have these existing frameworks, and you have new frameworks that are coming up that you actually need to automate and then make it easier for people to ride on that positive culture of like making compliance your competitive advantage.

Kabir Kumar:

Chris, you were nodding on the no deregulation.

Chris Brummer:

Well, I was nodding on almost all of it. I mean, because uh frankly, I think I think her points are 100% true. It's not that, particularly in in crypto land, it's not like there are there are fewer rules. Last time I checked, there's an entirely new legislative system for stable coins, and we're about to go into a very intense period of implementing those rules across our regulatory agencies, and there's an entirely new market structure uh possible market structure stack that's also being debated on the hill. And regardless as to whether or not that's being passed, you're also going to have implementation or stopgap measures by the major regulatory agencies here in Washington. So it's it's you know, I wouldn't call it deregulation. And clarity is usually this process of establishing more clear and more established regulatory guidelines. And I really liked what Snigda had to say about how when you do this, it's a little bit of an unlock for companies because again, it gets back to the scaling point that if you can figure it out, it means you can grow and you can grow also efficiently and very quickly. And I think that that makes it, let's call it the use case for compliance or at least the value proposition is even stronger. I've just sort of said that sort of one thing about at least the nature of my business when you ask about the what now. I mean, it's really kind of funny because I'm also a law professor over at Georgetown, and I sometimes like tell my students when they give me really complicated answers, like say, just think of me as professor low-hanging fruit. And you know, what we're trying to do here, it's not like some kind of rocket science. If anyone, anyone who understood financial regulation, the history of financial regulation, anyone who was looking at crypto would be able to predict a couple of things in MySpace. Like that, number one, if it was not going to die, you are going to need some kind of regulatory rules. And if you were going to have certain kinds of regulatory rules, those rules would have some kind of disclosure element and some kind of market integrity element. And therefore, you will need, if you have the rules, to have some kind of compliance infrastructure for those rules. So, I mean, like it literally required no thinking to understand that if you're going to build a company, let's go and build for where the puck is going to be. And frankly, regardless as to who won the election, you're going to have to have this process play out and you're going to have to have this set of tools, regardless. Now, obviously, if you have a political determination that the pace at which you are going to sort of transform the pipes of the financial system was going to be accelerated, then you may see even faster adoption or maybe faster market awareness of the fact that you're going to have to move in that direction. But honestly, you know, regardless, the the kind of technology that we're building is the kind of stuff that you are going to have to have one way or the other. And maybe because of the posture currently, you have more businesses and the size of the sector grows, which could impact obviously the number of phone calls that we're getting. But again, the core solution, the unlock, as Sitka had mentioned, you know, hasn't hasn't changed at all. And I think that in in compliance, the fun part is it's really number one, as I as I joke to people, we actually read things. You know, we actually, when we see the uh the guidance and the docs that are coming out, we actually sit around and and we try to figure out exactly what are the regulators saying. I just put it in chat GPT, you know. It's like it's like in in 10 words, tell me what they're trying to do. Five bullets. I just say five bullets. May I say that is the most VC answer?

Snigda Kumar:

No, no, the most VC answer is five bullets and make it a LinkedIn vote.

Chris Brummer:

Exactly, exactly. That could be the most VC thing you've ever told me right now, uh uh Kamir. But but you know, like at the end of the day, what you have to sort of do is sort of think of, well, how are people solving it? What are the assumptions embedded in terms of how the regulator is doing it, and then what kind of pain point is that going to create? And it's like, can I and can my team, can we figure out a better way to do it? Right. And and and I think that's one of the fun and really valuable um parts of starting a compliance company. Because I really think of myself as like an enabler, you know, and also base layer infrastructure. You build on me and you can you can frankly have more liquid financial products and you can operate in a way that reduces your risk. So you can grow and you deal with fewer problems, right? And that's kind of how I think of it, not so much of a, hey, you know, let's go knock off these, you know, these check marks. Um, but we're like a partner. We're gonna help you scale a lot faster.

Kabir Kumar:

You know, I love this idea for base layer infrastructure, it's sort of trust infrastructure. That's what you guys and companies that both Nick and I involved in are really building at the end of the day, and that's very exciting. I joke about it. We gotta we gotta reduce it, yeah, exactly. We can reduce three. Three is good. Three is McKinsey.

Mid-Read:

It's 2025. FinTechs can spin up cards in minutes and move money in real time. But most transactions still show up as cryptic codes on bank statements, just noise and guesswork. That's why leading fintechs and banks turn to today's sponsor, Spade. Spade's API transforms messy transaction strings into verified merchant names, categories, and locations in real time. So instead of SQAster's coffee shop, you get Blue Bottle Coffee on Market Street in San Francisco. And Spade just launched the Agent Layer, a modular system that connects enriched data directly to action. Spade's Agent Layer automates high-impact processes that financial institutions always had to build and maintain themselves, from powering faster authorizations to generating deeper insights to attributing personalized rewards. Companies including Citizens, Stripe, Mercury, and Built, use Spade to get more value from their transaction data. Learn more at spade.com. That's spa-de-e.com.

Kabir Kumar:

You know, on uh ChatGPD, I joke about ChatGPD, but really, as Snigda was saying, the sort of advancements in LLMs and Gen AI are a big driver for what you guys are building. Chris, in your case, it's smart contracts and gen AI, you know, what you're doing. Snigda, I would love for you to talk about how, you know, AI is sort of give us some sense of the nuts and bolts of how it works in your solution, how you're trying to really build an AI native business or AI needed product.

Snigda Kumar:

Yeah, no, I'm gonna get inspired by uh Chris and be like, okay, so if you actually look at compliance, what is the fundamental challenge there, right? Like it's not the rules and regulation, it's actually an information challenge. You have to interpret thousands of rules, map them to like, you know, millions of data points, detect what you're doing right versus what you're not doing right, then adjust like what you're really doing, figure out what you're doing differently across all 50 states because sometimes different disclosures are needed, sometimes just different uh business plans are needed across all 50 states. And then this is actually what AI excels at, right? Like, which is understanding stacks and stacks of like rules and do pattern detection and like have contextual understanding of where all of these like you know data really fit into what they're doing. And that's actually why doing compliance work with like AI is actually even better sometimes than throwing humans at a problem because you are actually looking at vast pieces of information all together to get to insight faster. And the time to insight, like that compression of time to insight, is what like really AI enables for us at Brico, where like, you know, in previous times, even previous companies that I worked at, they would have teams of people just like looking at websites across all 50 states to be like, what has changed? How does this impact us? And like, you know, then they take like a quarter to come up with like what they really need to change for reporting, what they really need to change for like future renewables. With AI, you can really automate that stuff because that's what it's really good at. It still has ways to go with like some of the other things where like doing things for people is still not there where it should be. But what it's really good at and how we're using AI is like, you know, just making it like that master analyzer and contextualizer of information, mapping things together, giving people the speed to incite, make that faster, compress that time, and then help people just like do things in a faster way without losing the accuracy element.

Nik Milanovic:

You know, it's such an interesting point you bring up. I feel like it's lost on a lot of FinTech founders that the real difficulty in working within the parameters of regulatory standards, a lot of the difficulty with compliance work isn't knowing what the rules are. It's knowing how to apply the relevant statute to the business that you're building. You know, if you're innovating, if you're building a new product, then by definition, you're probably building something that wasn't contemplated by the framers of the regs when they put them together. You know, Dodd Frank and Reggie really couldn't have understood the idea of a uh virtual debit card balance preloaded by crypto, you know, 15 years later. And so the difficulty is in understanding how will a regulator view my application of these relevant statutes to the business that I'm building here in a way that minimizes my tail risk and shows that I'm acting in a way that's like at least in the spirit of regulatory compliance, even if this specific circumstance hasn't been contemplated. And so, you know, as we think about these big platform shifts that are happening at the moment, the use of generative AI and financial services, the use of decentralized rails and stable coins in financial services, are there ways that regulators can be more proactive in framing rules for these kind of like quickly emerging areas? You know, you you look at Chris mentioned regulatory history, you look at the formation of prudential financial regulators, the alphabet snoop always came after there was a big loss event. So you have the SST formation after a market crash, you have the uh formation of the US Treasury after a run on the banks. Are we at a place where finally we can understand enough about these emerging technologies that we can create kind of forward-looking regulations without necessarily needing to incur a loss event?

Chris Brummer:

No, no, I'm just kidding. Uh, you know, I I think I think that we are very quickly coming to understand the technology, but you know, there are always going to be Tail Risk and, you know, Rumsfeldian unknown unknowns, right? And so the the question is really like, how do you deal with the unknown unknowns with emerging technologies? Because it could take 20 years to really scope out whether or not any particular tech is good. You know, let me just say that that one thing that a regulatory agency can possibly do is to think a little bit about how you can innovate on compliance itself, right? So if what we're trying to do is innovate on the technology and innovate in terms of how one experiments with different kinds of payment systems and the like, is there a way that we can create a space for companies to experiment with how one should comply, right? And to get information about the effectiveness of compliance and say if one compliance technology or tool fails or doesn't meet a certain kind of a standard, can you, to what Nick was saying, identify the fact that this is being done with an interest and with an eye towards compliance, even where the compliance requirement could be ambiguous or in a situation that was novel, right? And I think that that regulators have to think not only about sort of enabling the tool, but like how can you sort of enable the particular compliance approach? And I think that that'll at least start to move you in a direction where you at least are not in a position where the regulators are always so far behind the technology and you know, then have to wait for things to blow up. And then once things blow up, then you go and you create a new regulatory stack. And it's only then at that point in time that you have the people like Snigna and myself coming in to kind of figure out a way to wire some kind of um solution, right? You know, how can you have a forward-looking regulatory regime that is adaptable to the fact that you have lots of unknown unknowns? And I think that that's not just a a burden or a requirement on industry. I think that the regulatory system itself has to figure out how do you carve out a space to make that possible.

Kabir Kumar:

And it seems like it's possible in the stablecoin tokenized world. So in in a way, Chris, you're saying, look, there's this new architecture emerging. We're doing new stuff there, that we're not doing the trag 5 world. So might as well we do all stuff in a new way, including how the regulator interacts with that.

Chris Brummer:

Sometimes it's just a lot better just to create a new system, right? That's native to the technology in which it operates in, right? I mean, like you can try to put the square peg in the round hole and all, but you can't be surprised in if there's slippage, right? Because the shapes aren't fitting. So, you know, it's really a lot more efficient than to say, okay, look, okay, what's the technology? How does it operate? Can you create a technology or compliance system that is native to that environment? And guess what? Everyone's going to be a lot, a lot happier. You're going to have a much more effective compliance system, and you'll have an industry that's a lot happier too, because their costs will go down because it's at least a technology stack that's native to how their own business and operational systems move, right? So it almost makes too much sense.

Kabir Kumar:

Yeah, like uh white papers on chain, basically, right? Like if you're going to do it, there's a requirement. Why are you sending an email?

Chris Brummer:

You know, and you know, exactly. Like, I don't know. It makes a little bit more sense other than cutting up trees and putting them into a cardboard box and sending them over the mail to someone for an exclosure. Why not figure out a way that we can move information to wallets, that we can move the information to where the individuals are?

Nik Milanovic:

Aaron Powell Well, it's interesting. You know, this comes up a lot in the uh debate over uh whether the United States should be a central bank digital currency, but you know, one of the properties of CBDCs is that they are meant to give a better government insight into the composition and the state of the underlying financial ecosystem. Now, you don't necessarily need a CBDC in order to be able to do this, but what's really interesting is that with the use of, and again, I'm I'm hitting the buzzwords of the year, I'm so sorry. Outside of politics, these are going to be like the top topics. But if you have artificial intelligence which is capable of processing reams of information and data and finding interesting patterns and being able to Isolate individual events that are outliers. And at the same time, you have a transition of the financial services ecosystem gradually on chain. And so not just moving payments on chain, but also lending, contracting, kind of full institutional and individual KYC. Then in theory, you really have two very powerful tools to get a real-time picture and understanding of the financial services economy in the US that you don't really have currently. You know, with analog tools that you have today, there's reporting lag, research lag, and so as a regulator, you may not be able to take as proactive a position. And you're always kind of reactive when it comes to addressing kind of nascent financial challenges. Like you might have, you know, an emerging weak credit market that is bloating out of mortgages or distressed auto lending. But in theory, if you have artificial intelligence and everything is on-chain, you can get real-time data about these kind of emergent properties of the financial services ecosystem. I'm curious, you know, is that something that you see happening at all in the near future? And how should founders be thinking about the ability to work with their prudential regulator on kind of a better data sharing basis?

Snigda Kumar:

I can like, you know, take a first stab at that based on like what we are seeing, right? So, like, you know, regulators are also not like, you know, one entity. They're like, you know, different, different parts of regulated uh world that like, you know, regulators are trying to think about AI innovation, uh, more like a stream, like a stream of data sharing between the entity and the government. And what we're really seeing is a lot of the innovation is either coming from like really small states who are basically doing this out of a need for, well, I don't have manpower, I just need to be able to like just get better information faster. Can I do pilots to see if I can have a dashboard with the company that just like shares all the reporting with me? And then I just have like, you know, a vibe-coded way of like seeing what anomalies exist. There are very small states that are actually trying to pilot these systems, and some of them are talking to us to figure out like how we can like you know test some of these like smaller scale pilots. Then there are some of these larger states who are coming up with their own version of, well, this is what it looks like to be like regulated in the US, and we are only doing it in the state of California and New York, but that is actually going to basically make you do that for the rest of the country because you're already doing it for one state, you might as well do it for the other. So they are actually creating not like a real-time data sharing, but you know, the quarterly reporting and the quarterly like share all your information, whether you are a tradfy company or like a crypto company, it doesn't matter. You are under the same regulation, you gotta share like the same thing at the same frequency. Like, you know, California is coming up with like DFAL, they have very similar requirements as like you know, the money transmitters over there. And then that means that even like, you know, the crypto companies will have to share the same level of information that historically they could have avoided in California because you know that that rule didn't exist. Different states are taking different stands in it. And I would say like the smaller states are actually going to be the ones who are gonna push these innovation. Like, you know, you know, like some states are actually launching their own stable coins and like, you know, their own version of like state currency and and things like that. So it's out of necessity that we'll see those innovations. And then that will also kind of get a little bit more mainstream for the bigger and like in the middle states or even at the federal level to kind of like adopt those kind of like regulations.

Chris Brummer:

The wonderful question of like uh federalism that lawyers always talk about, you know, like uh and and the role of the states. You know, what I'm seeing is uh certainly lots of states are interested in innovating for sure, but also internationally, right? Like a lot of really interesting work is being done in different jurisdictions, large and small. And the learnings from those jurisdictions can be imported back either at the federal level or at the state level, right? It's all creating more data for regulators in terms of de-risking from their perspective, like how they move, right? And I always tell people you have to understand like a regulator's mindset. Regulators never get credit when things go well, but they will always be blamed when things go poorly, right? So in you know, putting yourself sort of in the mind of like of a regulator, you're largely, for the most part, your most incented to act when you feel like you've kind of de-risked the downside for yourself. So the more information that's out there, the more you can do it. I think more are coming to the conclusion that experimentation allows them to de-risk their policy, you know, which is which seems very evident to anyone who's been around, right? Hey, you know, but also the ways in which they experiment needs an upgrade because sometimes, you know, the market participants who are in the sandbox or something gets kind of stuck there, or the requirements are too high because the market participant is trying to experiment just as much as the regulator is trying to experiment and to see what's what works. And then finally, you know, it's almost impossible sometimes to graduate out of the sandbox, in which case then the market participant says, well, you know, I just I guess I should have just gone on anyway and just tried to experiment on my own, right? And so again, I think that the regulatory infrastructure kind of has to be upgraded in a way to meet the demand for information that they themselves are generating, right? And I think different states are better at doing that. And there's a huge amount of pressure, even right now, and you know, you're seeing different parts of a toolbox or the SEC, you talk about like an innovation exemption, right? You know, or maybe somewhere else you'll be talking about different kinds of pilots, right? Different kinds of ways in which the agencies themselves are trying to experiment to be able to get information to be able to create the right regulatory standards and guidelines.

Kabir Kumar:

You know, actually, I think it's kind of cool in the US that we have regulatory competition, you know, and that we have agencies at the state level and the federal level effectively. You know, New York DFS was ahead with the Bit license. And then we had, you know, across the pond, we had Mika. Now we have Genius. And I think that's a good sort of storyline for innovation that we have agencies.

Chris Brummer:

It does create this very interesting question, right? Because on the one hand, like there's a real push for preemption in order to get efficiency at federal level, right? When there's too much originate.

Kabir Kumar:

On the other hand, there is that's a positive force, right? It's a positive force at play in the sense that if we are ready for federal preemption, then we are at a level of maturity.

Chris Brummer:

Well, that's okay. That is that extra bullet point that VC, no, no, uh, you know, but that's but that's that's that's that little asterisk, right? You know, it's like, okay, well, well, at what point, and I'm not smart enough to figure that one out, but I think that's right. Like there's this kind of uh almost like conveyor belt of policy, ideally, right? Where you get a lot of good competition to hash out different approaches, to find the best approach. And once you start to get towards consensus as to what that approach is, then all that heterogeneity doesn't really make sense as much anymore, right? And at that point in time, you probably should have some kind of clear federal glide path that allows you to really leverage your company on the back of the entire national economy. You know, and figuring that out, I think is is still something that uh policymakers are kind of struggling with.

Nik Milanovic:

Alexander Hamilton and Aaron Burr would probably be a little bit distressed to hear that we're still debating this 200 years later. State versus federal generators. I think, you know, in an ideal case, you do have a world where, you know, exactly to your point, you have this kind of conveyor belt of policy where you have experimentation in different formats in different states, and then you can create uh kind of supervening policy on a federal level. I think the reality is you sometimes get kind of turf wars and and um you get kind of a desire to regulate locally using local context. And so, like Kabir said, I think that's a very healthy tension to have. Um, you have kind of multiple different supervisory bodies that are fighting to build the best rules, just like you do in fintech, that competition hopefully ends up creating a better product. I know a couple people on this call do have to run, and so I'm I'm glad we were able to just hit the hot topic of the day as efficiently as possible. But I just want to say a big thank you on our behalf for joining us today.

Kabir Kumar:

Thank you so much. Thank you. Thank you, Nick. Thank you, guys. Great chatting with you.

Nik Milanovic:

Thank you.

Snigda Kumar:

Bye bye.