When Sultan Meghji resigned Friday (Feb. 18) as chief innovation officer at the Federal Deposit Insurance Corporation (FDIC), he said he did so after encountering numerous challenges to lead a technological transformation of America’s financial system.
Meghji wrote in a Bloomberg opinion piece that existing regulation may not be adequate to deal with the technological challenges of the 21st century, but this may not be the biggest problem as an excess of bureaucracy and probably even willingness by many public officials to adopt changes may be the real problem that federal agencies are dealing with.
During his time at the FDIC, Meghji collaborated with the Federal Reserve, the Consumer Financial Protection Bureau (CFPB) and other agencies, and he wrote in the report “on virtually every front, I found barriers to innovation.”
Resistance to changes isn’t new for any regulator. Procedures are slow, bureaucracy is unnecessarily complex and hiring processes do not always bring the best candidates for a job. The problem that Meghji flagged in the report is that the scale of this situation may have much broader implications that could threaten the leading position of the U.S. in some areas like quantum computing or artificial intelligence (AI).
Meghji said the lack of expertise in the agencies and the problems to hire the right candidates are compounded by little understanding of the new technologies in some regulators and the mistrust in the private sector to fill certain positions or to even collaborate, according to the report.
“I encountered less than one-tenth of staff had a basic understanding of the technologies they regulate,” he wrote. “Even senior officials — those who lead regulatory development and implementation — are baffled by concepts like FinTech, the dark web and even financial apps.”
Experts in areas such as AI or crypto assets are in high demand by both public and private sectors. Yet, if public agencies, which usually can’t compete with the private sector on salaries, don’t at least offer a working environment that encourages innovation and adoption of the new technologies, they may not offer enough incentives for young experts to join. Additionally, internal hiring processes that prioritize some promotions over external, more technical candidates, won’t help either.
“The federal hiring process does a poor job of identifying and keeping the best candidates.” Meghiji wrote in the report. “I lost track of the number of times I was told to hire someone with few qualifications over a proven technology specialist. The government must put applied digital knowledge front and center instead of prioritizing government tenure and unrelated qualifications.”
The recent legal and regulatory battles between federal agencies and Big Tech may have created a sense of mistrust in big corporations among public officials. President Joe Biden’s appointments of Big Tech critics for top positions at the Federal Trade Commission (FTC), Department of Justice (DOJ) or the CFPB may have exacerbated the feeling that tech companies should be scrutinized all the time.
While it is safe to say that Big Tech has engaged in practices that are not competitive, the innovation it has created and the expertise it has accumulated in some of these areas shouldn’t be ignored. The risks of shielding federal agencies from this external expertise may come at a cost in the medium term.
In the past, changes in a public office would face resistance, but small, gradual steps could be enough to deal with market changes in time. Meghji wrote in the report the technological changes that are here now require a significant change in the approach that regulators have to technology.
Read more: New FDIC Acting Chair Says Evaluation of Crypto Risks Is a Top Priority for 2022
Sign up here for daily updates on the legal, policy and regulatory issues shaping the future of the connected economy.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More