Two rather uncorrelated regulatory developments made me ponder over established orthodoxies in business creation. While the ECJ repealed the existing Safe Harbor principles, the Basel Committee is working on a re-interpretation of Basel III (or for some: Basel IV).
As supply-side wisdom holds, capital-inducing reform (read: deregulation) should be key to driving enterprise creation and new opportunities. In fact, our industry is constantly arguing for pro-business reform and the lowering of financial, factual or legal hurdles. Both a new Safe Harbor regime and Basel III+/IV are an implicit taxation on this very capital, and stand against such thinking. In a similar vein, the European challenges to net neutrality change the underlying business dynamics, favor large players and handicap fledgling enterprises. Nevertheless, both cases by themselves provide business opportunities that should not be underrated. As a matter of fact, there is value creation within regulation. It just takes different forms that need a more subtle look.
The Safe Harbor case shows that European standards on data protection differ from the US understanding of privacy. Regardless of the individual position in the debate, full US corporate management of European data might be a thing of the past. In fact, it appears that the medium-term perspective for a new Safe Harbor ruling will be a ‘mediatization’ of data regimes, i.e. the management of European data for US companies by European providers. For startups and larger corporates alike, this provides a lot of potential. Microsoft and its partner Deutsche Telekom have spearheaded this – I would expect a series of smaller-scale data solutions to emerge as well.
As for strengthened Basel capital provisions, a similar logic applies. Tighter capital means more breeding ground for new forms of non-bank financial intermediation. I expect the surge in new marketplaces and capital providers to continue, despite recently cooled-off valuations in the space. This is particularly true for Europe which is facing a rather structural re-orientation of its banks. Quite interestingly, the regulatory aspect coincides with an ongoing financial services liberalization within Europe, much to fintech startups’ favor.
As most issues, the regulatory debate has two sides to it. And quite often, it does favor the upstart over entrenched incumbents.