Fintech Dynamism Amid Financial Innovation and Regulations
By admin January 25, 2019

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Fintech has grown rapidly around the world in recent years, but there are great variations among countries in terms of banking structure and regulations. While offering an alternative funding source for businesses and consumers that enhances financial efficiency, it also gives rise to a number of challenges for regulators. Authorities can play important role in constructing legal frameworks, remediating market failures and improving financial efficiency. However, to date, the issue is only being dealt with on a case by case basis.

Major Fintech centers in Europe and Asia all have specific regulations or guidelines for P2P lending whereas in the US, P2P lending is subject to laws for similar loan products. Regional regulations and guidelines also vary from each other in terms of license and minimum capital requirements. Regulatory sandboxes support live testing of start-up products as a measure to promote financial innovations.

The size of the Fintech market varies greatly across economies. For example, China has the highest Fintech adoption rate of 69%, measured by the percentage of regular Fintech users out of the active mobile or online population, followed by India with a 52% adoption rate. Other important regions include UK, Brazil, Australia, Spain, Mexico, Germany, South Africa, etc.

In some selected European centers, various regulatory frameworks have been implemented to guide the Fintech market. The UK, for instance, has long been an early leader in Fintech due to the government’s continued interest in supporting innovations. The UK central bank currently backs the Proof of Concept (POC) project in partnership ship with innovative firms as a dynamic mechanism to identify and support Fintech technologies for the use of central banking. It allows UK government to track trends in promising sectors such as data anonymization and blockchain.

Further, the EU Capital Markets Union action in 2015 sought to support digital innovations and the Digital Single Markets specifically focused on updating the regulatory framework to reflect today’s technological developments. Germany is also active in Fintech start-ups, a new breed of new Challenger banks, as well as innovations in credit analysis to promote financial inclusion. Canada also saw an increase in Fintech financing from 2016 with the Ontario Securities Commission has the LaunchPad Initiative which aims to provide formal and informal dialog between regulators and innovators.

From an Asian perspective, China is the most active in the Fintech market. Due to its sheer size, it is also the largest retail market and e-commerce market. Fintech start-ups are supported by some major e-commerce companies. Peer-to-peer lending requires action from regulators, especially the elaboration of rules regulating lending practices about customer funds, guarantees, and pooled investments. Notably, the Singaporean Monetary Authority entered into international cooperative agreements with regulatory authorities in Switzerland and Japan in order to increase efficiency and better manage risks. Meanwhile, India is embarking on digital transformation based on policy considerations to thwart black-market activity and increase tax compliance, so as to promote financial innovation.

The role left for regulators is to strike the balance between fostering financial innovation and managing risks involved in various areas such as investment fraud and data protection. In providing a level playing field for developed and emerging institutions, they shall also address the gap in legal and policy compliance resulting from the stratified nature of the world of blockchain. Regulations also vary greatly across jurisdictions on an international scale, leaving practically little chance for harmonization in the near term. Major regulators such as the International Organisation of Securities Commissions (IOSCO) could be expected to coordinate efforts of national governments to address the international challenges hindering the streamlining of international Fintech regulations.


For more information:

The Global Findex database 2017

Fintech in a Global Setting

As Fintech evolves, can financial services innovation be compliant?

The Emerging Landscape of Fintech Regulation

The Use of Regulatory Sandboxes in Europe and Asia

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