It´s hard to talk about Fintech and regulation without thinking about the financial regulator mandates and their implications. It conjures up certain questions which will eventually form a part of the backbone of future Fintech regulation: Who can or should provide financial services or products? How can you balance start-up low cost models and agility benefits with compliance costs? How can regulation cover the ever increasing number of new business models and/or match the speed of innovation cycles?
Managing and Balancing Risk with added value
Emerging Fintech companies have limited track records and that presents a difficulty in identifying what their obligation is. Does that automatically mean that they represent a limited prudential and consumer risk? On the same token, does exponential growth present a risk blind spot?
New technology offers regulators a reduced work load and should be taken into account when formulating future Fintech regulation.
- Smart contracts – reduced costs
- P2P lending – real-time credit risk visualization
- Blockchain – obligations under MiFID
- E-money – limited AML issues with cash transactions
- Data transparency – direct audit of financial institutions
Banks as stakeholders have long been using regulation as ‘one of the boogeymen’ far too long when explaining and justifying their struggles to keep up with technology innovations. However the very need to deal with regulation and compliance is actually leading to the creation of new innovative technology. The simplification of incumbent banking systems and increased data automation will eventually lead to increased avenues for “collaboration” and innovation. Unfortunately banks have been so far caught up with trying to minimize the impact of “disruption”.
Data is at the forefront when it comes Regulation. So as an example, why can´t regulators accept an XML or a data feed which can later be utilized for further data analysis rather than an old Word/Text document? Banks have the technological and financial capabilities to launch innovative products but are still held back by regulatory concerns. Why? The concern is naturally well founded. Banks operate under regulation that helps them ultimately deflect liability.
Regulation should maintain and foster stability
Regulators could work for the benefit of Fintech and not against them in a collaborative process of consultation. Eventually, the proposals for regulatory changes might become rules, allowing for a degree of delay during consultation. This in turn will allow alteration and republishing.
Why shouldn´t intuitive database applications be deployed to analyze and contextualize regulatory information? Banks will be assured a greater depth of insight giving them time to apply relevant changes. The compliance teams within banks can take advantage of technological innovation to ensure they are able to better analyze and understand processes critical to their competitiveness.
Compliance should not hinder innovation
What should compliance look like for Fintech? Will it absorb too much of critical management time? Will it be seen as a diversion from the core objectives of the Fintech business? Questions surrounding Fintech financing, operational and management risk, data security & monetization, and infrastructure will have to be addressed to finally get a Fintech regulatory framework in place. Naturally, involvement from all the key stakeholders in getting the culture right from the outset will pay dividends for the future of Fintech.
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