S3 | E12: How to Improve Collaboration Among Banks, FinTechs, and Regulators

The relationship among banks, FinTechs, and regulators has never been more critical - or more complex for that matter. With technology advancing at breakneck speed, the challenge lies in striking a healthy balance between fostering innovation, while not compromising the safety and soundness of the financial services industry. In this episode of the Risk Intel podcast, host Ed Vincent sat down with industry experts Kirsten Muetzel and Jeanette Quick to unpack the intricate dynamics amoong banks, FinTechs, and regulators, and how collaboration can drive better outcomes for all.

The Trust Equation: FinTechs + Banks + Regulators = Trust

For years, FinTechs have pushed the boundaries of financial innovation, introducing new ways to transact, lend, and manage money. But with disruption comes scrutiny, and regulators have worked to keep pace with the shifting landscape. One of the biggest challenges? Building trust.

Kirsten and Jeanette both emphasized that FinTechs and banks that engage with regulators early—rather than waiting until compliance becomes an issue—are far more likely to find success. Transparency isn’t just a best practice; it’s a necessity. Regulators, in turn, need to recognize that most FinTechs aren’t looking to bypass rules, but rather need guidance on how to apply them to novel business models.

"Being clear, open, and proactive is the key. Engaging early is essential in preventing misunderstandings and facilitating better collaboration." – Jeanette Quick

In this dynamic, trust is earned through fostering a culture of open communication, proactive compliance efforts, and a willingness to engage in meaningful dialogue.

Regulatory Sandboxes: A Controlled Environment for Innovation

One of the most compelling ideas raised in the discussion was the potential for regulatory sandboxes—structured environments where financial institutions and FinTechs can test new technologies under regulatory supervision. The U.S. has been slow to embrace this model compared to other countries like Singapore, who have launched numerous initiatives to support FinTech investment and innovation (learn more here). Kirsten though argued that it could provide a much-needed bridge between regulators and innovators.

By allowing financial products to be tested in a controlled setting, regulators gain firsthand insight into emerging technologies without exposing the broader financial system to unnecessary risk. This approach could be particularly beneficial in areas like AI-driven financial products and digital assets, where the regulatory framework is still evolving.

"Fostering innovation while maintaining safety and soundness is a tightrope walk, but it’s one that we can navigate if we’re willing to work collaboratively with regulators and industry leaders." – Kirsten Muetzel

However, as Jeanette pointed out, the term “sandbox” has become somewhat polarizing, with concerns about whether it gives FinTechs too much leeway. The key isn’t just creating a sandbox—it’s ensuring it has clear boundaries, oversight, and a framework that benefits all stakeholders.

AI, Digital Assets, and the Future of Regulation

The conversation naturally turned to two of the hottest topics in financial regulation today: artificial intelligence (AI) and digital assets (Crypto). Both technologies have immense potential, but they also introduce new risks and uncertainties.

AI is already transforming the way FIs conduct risk assessment, fraud detection, and customer interactions, but as it becomes more deeply embedded in decision-making processes, regulators must ensure its used responsibly and without unintended biases. Similarly, digital assets—once viewed as a fringe movement—are now squarely on regulators’ radar. Recent government initiatives signal that oversight in this space will only increase over the next four years.

For FinTechs and banks, the message is clear: understanding these emerging risks and demonstrating compliance readiness is essential. Those who can articulate how they are using AI or digital assets responsibly will be in a stronger position to shape regulatory conversations, rather than simply react to them. Key take away is to stay proactive vs reactive in these quickly evolving times.

Doing the Homework: Why Preparation is Everything

If there was one recurring theme throughout the discussion, it was the importance of preparation. Nothing raises red flags for regulators faster than a FinTech claiming that no regulations apply to them.

Kirsten and Jeanette shared that FinTechs and banks need to do their homework—understanding the regulations that might impact them, anticipating compliance challenges, and presenting well-thought-out risk mitigation strategies. Regulators don’t expect perfection, but they do expect financial entities to take responsibility for understanding their regulatory obligations.

This level of preparedness not only builds credibility but also fosters more productive conversations with regulators. Instead of being viewed as disruptors trying to sidestep oversight, FinTechs and banks that take a proactive approach can position themselves as valuable contributors to the evolving regulatory framework.

The Path Forward: Collaboration as a Competitive Advantage

Despite regulatory complexities, the conversation ended on a note of optimism. While bad actors exist in every industry, most FinTechs , banks, and regulators genuinely want to do the right thing. The challenge is ensuring that compliance doesn’t become a bottleneck for innovation—but rather a foundation that strengthens the financial ecosystem.

By fostering early engagement, regulatory transparency, and collaborative innovation, FIs, FinTechs, and regulators can all work together to build a system that is both innovative but secure. The key is to approach these discussions with a mix of optimism and skepticism—trusting in good intentions while always verifying through diligence and oversight.

In a world where technology continues to reshape financial services, collaboration isn’t just a regulatory necessity—it’s a competitive advantage.

Listen to part 1 with Kirsten Muetzel to learn more or contact SRA Watchtower to learn how we can colloborate.