Financial services regulation needs to be more like Linux. That, in a nutshell, is the argument that author, thinker and social media / collaboration guru Don Tapscott describes as ‘risk management 2.0’.

“The financial services industry needs more than just an injection of capital and some more regulation,” Tapscott, the man behind such titles as Wikinomics and Growing Up Digital, told me during a short but intense briefing earlier today. “It needs a whole new operating model based on transparency and sharing intellectual property.”

“Banks have all these risk management algorithms, and all this data, but historically they saw them as a source of competitive advantage,” he explains. “Well, it didn’t really work out that way, did it?”

In light of the credit crunch, not only did the banks fail to achieve competitive advantage by keeping their risk management tactics secret, “they succeeded in conferring structural collapse onto the whole industry,” Tapscott adds.

IT will be the mechanism that enables a more open – and therefore stable – financial services industry, he says. More specifically, financial reporting via the XML standard XBRL will help move financial risk management “into the commons”.

You can read more about Tapscott’s ideas on the topic in a white paper published in October 2008 called Risk Management 2.0: Overcoming the Current Financial Crisis and Restoring Stability and Prosperity with a New Perspective on Risk. (Click here to download .pdf).

Whether or not it is at all likely for the financial services industry to adopt this kind of approach, Tapscott declined to speculate. “The future is not for predicting, it is there to be made,” he said.

It sounds like an extreme approach; financial services organisations are notoriously protective of their operating practices. But right now, extreme approaches might be exactly what the financial services sector needs.

You will be able to read more from my interview with Don Tapscott in the March issue of Information Age magazine.