The UK’s financial regulator, the Financial Conduct Authority (FCA), has announced it will start working with partners in Europe, Asia and the US with the goal of a global regulatory sandbox for fintech. Global regulation will promote multi-jurisdictional solution design, removing compliance problems when fintech innovators go global.
While regulation is sometimes viewed with disdain, it is important to remember that embracing regulation can uncover competitive advantages and new opportunities. It can also be a force for good; after all, the regulators are not out to get you.
The FCA has some experience in this area. Their 2016 regulatory sandbox for fintech promoted innovation and startups. The UK’s fintech ecosystem is now flourishing. The British challenger bank has been particularly successful: Starling, Metro Bank, Revolut, Monzo, just to name a few.
The possibility of the global version would enable fintech companies to test their product or service in different markets. It would also promote cross-border design thinking which is increasingly necessary to fintech success. The FCA’s statement about the global sandbox is here.
Such an ambitious project would rely heavily on multi-jurisdictional regtech. Regtech allows for automated reading and implementation of regulations. It allows automated meeting of regulatory requirements, such as reporting or online forms. It integrated compliance into the design of business processes both on a human and technological level.
In the same spirit of international fintech collaboration, the European Banking Authority is to establish a Fintech Knowledge Hub.
The EBA’s Fintech Knowledge Hub will be designed ‘to [promote] engagement between incumbent institutions and new FinTech entrants.’ In its press release, the EBA said the Knowledge Hub would seek to ‘enhance knowledge sharing and foster technological neutrality in regulatory and supervisory approaches.’
What about regulatory trends in fintech globally?
The Netherlands, Canada, Australia, Singapore and Hong Kong have also launched regulatory sandboxes for fintech in recent years.
Indian fintech sector needs regulatory support to flourish. A report by YES Bank, a private Indian bank, into domestic fintech development has encouraged strong regulatory support of the nascent industry. The report is a great example of a large bank embracing the role of regulation in the development of a healthy fintech ecosystem.
A survey for the report showed 88% of respondents wanting a government funded co-working space and 87% wanting a regulatory sandbox. Fintech has the capacity to drastically improve India’s relationship with money. Still largely unbanked and reliant on cash, President Modi has been doing much to encourage card payments and a more digital economy.
In China, regulation is not so friendly.
China recently (March 13) announced a reshuffling of many government agencies and regulators. Part of this move will see the combining of the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC). What does this mean? That the People’s Bank of China, the central bank and regulator, has increased legislative power. This result will be a tougher regulatory environment for fintechs with fewer loopholes. In the long run, consolidated regulation makes the rules clearer and the game easier. The may be a positive long term outcome, writes Business Insider.
As we wrote last year, a global approach to regulation or at least definitions in the fintech industry is more practical even the global nature of trade and hence financial transactions.
By Grace Appleford, Research Analyst.
