Regulators from across the world recently spoke out at a financial technology (fintech) industry event, to pledge that will do all they can to ensure that they do not stifle fintech innovation, giving entrepreneurs the free-reign they require to develop new financial solutions. Htet Tayza comments.
Attitudes to regulation
The financial world has always viewed regulation with caution. Many financial professionals have long-believed that when regulators are too heavy handed, they implement restrictive financial industry policies, which make it harder to amass profit. The industry has somewhat changed its mind on regulation in the wake of the global financial crisis, but it still believes that regulation is restrictive.
Fintech has posed new challenges for fintech regulators worldwide. How do you regulate the sector, to ensure minimal disruption for traditional financial institutions, without stifling innovation? Regulators in some of the most prominent fintech hubs, such as Singapore, have adopted ‘sandbox’ policies, which promote development with minimal regulatory oversight, and others may soon follow.
Regulators discussed fintech regulation at financial body the Australian Securities & Investments Commission’s (ASIC) recent annual forum. According to Independent Financial Advisor, an Australian-based financial news source, these regulators collectively acknowledged that financial rules have not kept up with fintech, and that they must not “jump in” to regulate the sector to ensure it grows. Commenting Ravi Menon, a member of global regulator the Financial Stability Board, said:
“Often when it comes to the risk assessment of fintech there is a tendency to have a fear of the unknown or a tendency to imagine the worst. A degree of conservatism and caution are indeed warranted for regulators but we should doubt taking too a pre-emptive approach when dealing with the uncertainties of fintech… Regulators need to keep pace with innovation but introducing regulation too early stifles innovation and potentially derails the adoption of useful technology. Regulators must resist the temptation to ‘jump in’.”
Speed up progress
Also Maureen Jensen, the Chair of the Ontario Securities Commission, argued that regulation stymies growth as it’s slow to evolve, and key areas of fintech expansion are data and identification. Explaining, she said: “What we have today is a full series of systems that are isolated and disconnected. We don’t have digital identification in most jurisdictions – that is going to be the cornerstone of being able to actually use fintech accurately – but we’re not there yet. As the world is innovating and as regulators are catching up to that world – that’s when eventually we’re going to get to some better systems.”
Adding his two cents Greg Medcraft, the ASIC’s Chairman, noted: “Technology has connected global financial markets in ways that were previously unimaginable, yet the laws and regulations that govern financial systems have not always moved in sync with technological advances.” Going on, he said that first regulators have to develop a deeper understanding about the risks and opportunities attached to fintech “And secondly, we need to develop better approaches to regulation and supervision that will promote the safe and responsible adoption of new technologies but without stifling innovation.”
Brave new world
It is increasingly clear that regulators worldwide face a difficult task, when it comes to regulating fintech. They need to ensure that innovators have the room to develop convenient solutions for consumers, such as digital payment apps, as well as useful programmes for companies, in the mould of blockchain – which safeguards digital security for financial transactions, while ensuring that traditional financial firms continue to turn a profit. Hopefully by agreeing to tread cautiously, the regulatory bodies of the world will only regulate fintech when absolutely necessary, aiding growth.