Category Archives: Fintech International

Fintech As a Pathway to Financial Inclusion? The Case of China

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Microfinance Gateway | Douglas Randall & Jennifer Chien| Apr 2018

Two Chinese fintech models illustrate the opportunities and risks involved

Douglas Randall is a Financial Sector Specialist and Jennifer Chien is a Senior Financial Sector Specialist in the Finance, Competitiveness, and Innovation Global Practice, World Bank Group. 

The opportunities and risks of fintech are front of mind for financial sector policymakers these days, and many are looking to China for inspiration and guidance. The Chinese experience has undoubtedly demonstrated that fintech – i.e. new, technology-driven financial sector players - can transform how consumers make payments, save, borrow, invest, and insure themselves against risk. But this experience also comes with caveats and cautionary tales. These topics, along with many others, are discussed at length in a new report on China’s financial inclusion experience co-authored by the World Bank and the People’s Bank of China.

The report explores two fintech models in China that serve to illustrate both the opportunities and risks of fintech: (1) nonbank digital payment providers, and (2) peer-to-peer (P2P) lending platforms.

Nonbank Digital Payment Providers

Alibaba and Tencent were originally established as an e-commerce and social network company, respectively. But both are now major players in the retail financial services market. This transformation began with the integration of payments functionalities into their existing online networks. Alibaba’s first foray into financial products was Alipay, launched in 2004 to facilitate transactions and build trust between buyers and sellers on Taobao, Alibaba’s online marketplace. Similarly, the integration of a payments product into Tencent’s social media platforms WeChat and QQ has proven to be a massively successful model that allows users to blend social and financial interactions, including sending gifts or remittances.

Fast forward a decade, and hundreds of millions of customers now use payment services offered by nonbank digital providers like Alipay and Tenpay, as well as a broader range of financial products offered by Ant Financial, a group of companies of which Alipay is a member. Alibaba and Tencent were leaders in opening up digital payments to nonbank players. The result is a dramatic evolution towards a cashless society in many major urban areas in China. The Chinese experience has shown that online, network-based business models can facilitate the design and delivery of innovative financial products by leveraging technology, network effects, big data, and cross-subsidization opportunities.

See: China’s Alibaba bringing online payment platform AliPay to Canada

But while fintech has certainly improved the availability, convenience, and affordability of financial products for consumers within these large online ecosystems, there is less consensus on the degree to which nonbank digital payment providers have reached unbanked, "last mile" consumers in China. Consumers who do not use social media or e-commerce platforms - disproportionately the poor, rural, and elderly - may receive limited financial inclusion benefits from such models. The scarcity of robust data and analysis poses a further challenge in determining the degree to which fintech providers reach "last mile" consumers.

In fact, much of the progress achieved in reaching the “last mile” with basic transactional products has been accomplished by traditional financial service providers. For example, China has nearly one million third-party retail agents operating on behalf of a financial service provider, with many agents operating in villages not otherwise covered by bank branches. Less than 5% of these agents have been established by nonbank digital payment providers. The channeling of social transfers through bank cards and via agents has also been a significant contributor in reaching previously excluded adults.

P2P Platforms

In the credit space, fintech providers have similarly disrupted the status quo. New digital credit providers have emerged, including internet banks, online microcredit companies (MCCs), and P2P platforms. In particular, P2P platforms seized on the significant market opportunity to reach creditworthy retail customers neglected by traditional financial service providers focused on serving larger enterprises. P2P lending platforms began gaining steam in the Chinese market about ten years ago, and there are now over 2,000 such platforms serving over eight million borrowers in China.

See:  Central banks should consider using digital currencies: China think tank

Unfortunately, there have been numerous instances of consumer abuses in the P2P industry. Many lenders/investors were led to believe that their funds were channeled to a specific borrower or that their loan was guaranteed by the P2P platform – beliefs that often turned out to be false. There were also cases of outright fraud. In one high-profile case, the company Ezubao was shut down in 2015 after authorities discovered it had been operating a Ponzi scheme in which fraudulent investment products were sold to nearly one million investors.

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Download the 98 page PDF report --> here


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

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PayPal is going after the big banks

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CBC News | Peter Armstrong ·| April 14, 2018

New ways to bank could do away with the 'antiquated' trip to the branch

It is precisely the kind of thing that keeps the big banks up at night: the Wall Street Journal reported this week that PayPal is quietly piloting a program that would allow users to open traditional chequing accounts.

The online payment processing firm is one of a few technology companies thinking about getting into the banking business with a new model that could fundamentally alter our relationship with traditional banks and erode the simplest and oldest way they bring in new customers.

See:  Fintech in Canada: The Good, The Bad & The Ugly

If you're a traditional bank, this is the stuff of nightmares.- Alyson Clarke, Forrester Research

"If you're a traditional bank," says Alyson Clarke, principal analyst at research firm Forrester, "this is the stuff of nightmares."

For generations, the bank's best pipeline for new customers was the young people brought in by their parents to open their first account. The parents would take their kids to whichever bank they'd been using for years, and in most cases, Clarke says, those young people would grow up and stay with that bank for the rest of their lives.

But that could be changing.

"A lot of consumers, particularly millennials, think that all banks are basically the same," Clarke told CBC News. "And that old method of going into the branch to open your bank account with your mom or dad just seems completely antiquated."

Which is why PayPal is horning in on the big banks' turf at a time when they may be least able to withstand it.

For now, PayPal is only offering traditional banking services to a select group of its customers, who can get a debit card to withdraw cash from ATMs, deposit cheques by taking a picture and have their pay slips deposited directly into their account.

Chief Operating Officer Bill Ready says PayPal is targeting those who don't have a traditional bank account. That would presumably capture some of those referred to as "unbanked" customers, but would certainly include that younger generation that hasn't made an inaugural trip to a bank branch yet.

Checkout:  Competition Bureau weighs in on fintech: urgent action required

"If you don't have a bank account, you can't take an Uber ride, can't stay in a room on Airbnb," he told the Wall Street Journal.

To do all this, PayPal has had to string together a lot of technology and a series of partnerships. PayPal itself doesn't have a banking licence in the U.S. so it has teamed up with a handful of banks that do: debit cards from a bank in Delaware, cheque deposits through another in Georgia, and even loans from a bank in Utah.

Canadian options

For now, the pilot is only happening in the United States. But at least one expert says that model would be enormously successful here in Canada.

"Banks are not well loved in this country," says Conor Bill, managing director of investment firm Mt. Auburn Capital.  "If you have a reliable alternative that you never have to establish a relationship with a bank, that is incredibly threatening to the [traditional] banks," he says.

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

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Your guide to cryptocurrency regulations around the world and where they are headed

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CNBC | | Mar 27, 2018

As demand for cryptocurrency grows, global regulators are divided on how to keep up. Most digital currencies are not backed by any central government, meaning each country has different standards.

Every seemingly small regulation announcement has driven the price of bitcoin and other cryptocurrencies in 2018.

Here's your guide to where digital currencies stand with governments and regulators around the globe.


Global regulators

View on bitcoin: Legal tender, depending on the country.

Policy on exchanges: No global regulator exists at the moment.

At a G-20 meeting this month, Argentina's central bank governor outlined a summer deadline for members to have "specific recommendations on what to do" and said task forces are working to submit proposals by July. Italy's central bank leader told reporters after the meeting in Buenos Aires, Argentina, that cryptocurrencies pose risks but should not be banned, according to Reuters.

The Financial Stability Board, a global watchdog that runs financial regulation for G-20 economies, took a cautious tone in responding to calls from some countries to crack down on digital currencies.

"The FSB's initial assessment is that crypto-assets do not pose risks to global financial stability at this time," board Chairman Mark Carney said in a letter on March 18.

Carney, who is also governor of the Bank of England, pointed to the small size relative of the asset class compared with the entire financial syste. "Even at their recent peak, their combined global market value was less than 1 percent of global GDP," he said.

The International Monetary Fund has also called for more cooperation.

IMF Managing Director Christine Lagarde highlighted cryptocurrency's potential as a vehicle for money laundering and the financing of terrorism. In a March blog post, Lagarde called for policies that protect consumers in the same way as the traditional financial sector.

Japan

View on bitcoin: Legal tender as of last April.

Policy on exchanges: Exchanges are legal if they are registered with the Japanese Financial Services Agency.

Japan is the biggest market for bitcoin. Almost half of the digital currency's daily volume is traded in the country's currency, according to data from Cryptocompare.

Last week, the agency issued a warning to Hong Kong-based Binance for operating in the country without a license.

Hacks have been an issue in Japan and elsewhere. It was the first country to adopt a national system to regulate cryptocurrency trading after its exchanges were subject to some well-known breaches including Mt.Gox.

In March, Japanese regulators issued punishment notices to multiple exchanges and forced some to stop business altogether after the $530 million theft of digital currency from exchange Coincheck.

See:  How Asia Is Adopting Crowdfunding From The West


United States

View on bitcoin: Not legal tender, according to Financial Crimes Enforcement Network.

FinCen, a bureau of the Treasury Department, said in 2013 that "virtual currency does not have legal tender status in any jurisdiction."

Policy on exchanges: Legal, depending on the state.

The U.S. handles the second largest volume of bitcoin, roughly 26 percent, according to Cryptocompare.

U.S. regulators differ in their definitions of bitcoin and other cryptocurrencies.

The Securities and Exchange Commission has indicated it views digital currency as a security. Earlier in March, the agency expanded its scrutiny and said it is looking to apply securities laws to everything from cryptocurrency exchanges to digital asset storage companies known as wallets. The agency has focused on initial coin offerings, or digital coins released through fundraisers known as token sales, and has stepped up efforts to police them through recent subpoenas.

The Commodity Futures Trading Commission says bitcoin is a commodity. CFTC Comissioner J. Christopher Giancarlo, pictured above, has gained a reputation as a more cryptofriendly regulator. In written testimony before the Senate Banking Committee in February, he advocated a "do-no-harm" approach to ledger technologies. He also briefly changed his Twitter bio to list "#CryptoDad" among the accolades.

The IRS says cryptocurrency is not actually a currency. It defined it in 2014 as property and issued guidance on how it should be taxed.

Treasury Secretary Steven Mnuchin has been vocal about bitcoin's ability to aid criminals, telling CNBC in Davos in January his main focus on cryptocurrencies is "to make sure that they're not used for illicit activities."

 

See:  Crypto Industry Should Self Regulate, Says CFTC Commissioner


European Union

View on bitcoin: No EU member state can introduce its own currency, according to European Central Bank President Mario Draghi.

Policy on exchanges: Legal, depending on the country.

About 4 percent of cryptocurrency's daily volume is done in euros, according to Cryptocompare.

EU leaders have voiced concern about money laundering. European Commission Vice President Valdis Dombrovskis, pictured above, said at a February roundtable in Brussels that digital assets "present risks relating to money laundering and the financing of illicit activities."

The virtual exchanges and wallet providers should be under the "Anti-Money Laundering Directive," Dombrovski said. "The commission will continue to monitor these markets together with other stakeholders, at EU and international level, including in the G-20."

Draghi rejected Estonia's attempt to create a state-backed cryptocurrency called "estcoin."

"No member state can introduce its own currency," Draghi said in September. "The currency of the euro zone is the euro."

Regulations differ within the bloc.

France's financial regulator Autorite des Marches Financiers released a list of 15 exchanges it would blacklist in March. The country said it will make a joint proposal with Germany to regulate the bitcoin cryptocurrency market, Reuters reported.


United Kingdom

View on bitcoin: Not legal tender. "Only sterling is legal tender in the UK," according to Carney (pictured above).

Policy on exchanges: Legal, and need to register with the Financial Conduct Authority. They are required to meet the same anti-money-laundering counter-terrorism standards as other financial institutions, according to the BOE.

The exponential price gains in cryptocurrencies are "speculative mania," Carney said in early March.

"The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system," Carney said in a speech. "Being part of the financial system brings enormous privileges, but with them great responsibilities."

Carney said the digital currency "has pretty much failed thus far on" traditional aspects of money.

"It is not a store of value because it is all over the map. Nobody uses it as a medium of exchange," Carney said.

Many virtual currencies are trying to dislodge the British pound but "only sterling is legal tender in the UK," Carney said in another March speech.

The Financial Conduct Authority called crypto assets "high-risk, speculative products," in a warning to consumers in November.

South Korea

View on bitcoin: Not legal tender.

Policy on exchanges: Legal but use of anonymous bank accounts for virtual coin trading is prohibited. Need to register with South Korea's Financial Services Commission.

Trading in South Korea makes up about 4 percent of daily volume of bitcoin. For other cryptocurrency such as XRP, trading in the Korean won commands a premium to U.S. dollars. Asia's fourth largest economy has become a hub for trading but regulators have given mixed signals.

Financial authorities said in 2013 that bitcoin and other digital currencies are not legitimate currencies, according to the Korea Herald.

South Korea's justice minister said in January that the government was considering a shutdown of cryptocurrency exchanges. A petition asking the government to hold back on "unreasonable" regulation got 280,000 signatures following the announcement. The government responded by saying it will take firm action against illegal and unfair acts in cryptocurrency trading.

Last year, the Financial Services Commission banned local finance firms from trading bitcoin futures, according to local publication Business Korea. The commission also banned the use of anonymous bank accounts for virtual coin trading in January but said it doesn't intend to completely shut down domestic exchanges.

The government has said that while it will not ban bitcoin exchanges, initial coin offerings and futures will remain under scrutiny.

In late February, a government official said South Korea had still not decided how to regulate.

"The government hasn't made any conclusion yet. Sufficient consultations should come first," Hong Nam-ki, minister of office for government policy coordination, told parliament.


China

View on bitcoin: Not legal tender.

Policy on exchanges: Illegal.

Trading bitcoin in China is technically illegal.

In 2017, the government bannedICOs — a way for start-ups to raise funds by selling off new digital currencies — and shut down domestic cryptocurrency exchanges.

In January, a senior Chinese central banker said authorities should ban trading of virtual currencies as well as individuals and businesses that provide related services.

But activity in crypto has carried on through alternative channels like mining. Chinese authorities are looking to end the practice, according to Reuters, which cited an internal memo from a government meeting in January.

Singapore 

View on bitcoin: Not legal tender.

Policy on exchanges: Legal, may fall under regulatory purview of the Monetary Authority of Singapore.

The Singapore dollar makes up 0.02 percent of daily global bitcoin trading volume but the country has emerged as a hub for ICOs. Two of the 15 largest coin offerings happened in Singapore, according to a PwC report.

Singapore is positioning itself as more friendly to cryptocurrencies than other regions. There is no strong case to ban digital currency in the city-state, Singapore's central bank said in February, noting "it is too early to say if they will succeed."

In January, the Monetary Authority of Singapore urged the public "to act with extreme caution and understand the significant risks they take on if they choose to invest in cryptocurrencies."

The agency also said cryptocurrencies are not legal tender and highlighted the risk posed by bitcoin's anonymity.

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

 

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France Wants to Become the First Major Financial Center to Have a Framework that Facilitates Initial Coin Offerings

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Crowdfund Insider | | March 27, 2018

Some large countries are blocking initial coin offering, some are observing and others are creating rules by enforcement action, France wants to become “the first major financial center to propose an ad hoc legislative frame work that will allow companies initiating an ICO to demonstrate their seriousness to potential investors.”

This is according to Bruno Le Maire, the Minister of the Economy and Finance of France.

France has always been an important financial center but Paris has operated in the shadow of its friends across the Channel for many years. London is the de-facto financial capital of Europe but Le Maire appears ready to strike out on his own in an interesting and unique method.

Writing on the pages of Numerama, Le Maire issued a “Tribune” addressing his vision for the future of digital assets and cryptocurrency offerings. Noting that France was an early adopter of securities crowdfunding, Le Maire declared that “we want to stay at the forefront” and France will do so when it comes to ICOs.

The Minister explains;

“A revolution is underway, of which bitcoin was only the precursor. The blockchain will offer unprecedented opportunities for our startups , eg with Initial Coin Offerings(ICO) that will enable them to raise funds through “tokens” in crypto securities or not. It promises to create a network of trust without intermediaries, to offer increased traceability of transactions and, overall, to make the economy more efficient.”

Le Maire will please the most vocal of cryptocurrency advocates calling the shift to digital assets a “revolution”  that will upset banking, insurance and more. He cautions against those who would sit on the sidelines and become spectators instead of participating in this inevitable change.

See: 

Le Maire acknowledges the risk intrinsic to cryptocurrency and Blockchain in general, yet embracing innovation always brings risk;

As Crowdfund Insider reported earlier this month, Le Maire has appointed former Deputy Governor of he Bank of France, Jean-Pierre Landau, to craft new rules that will provide legal certainty for ICO issuers that empower Fintech innovators.

According to Le Maire, the forthcoming Action Plan for the Growth and Transformation of Enterprises ( le plan d’action pour la croissance et la transformation des entreprises or PACTE) will be presented to the French Council of Ministers in weeks. PACTE may provide the French securities regulator, Autorité des marchés financiers (AMF) the ability to approve ICO issuers with a “visa” to sell tokens while publishing a “white list” for investors to know which issuers have received the regulatory blessing. Risk will exist but not the fraud.

Le Maire’s statements echo those of his boss. Emmanuel Macron, President of France, has discussed his vision of France as a startup nation embracing hyper-innovation, and a complete change of mindset veering from the statist past. Macron has said he is committed to lifting the barriers to entrepreneurship, to helping businesses succeed “better, faster, in the country, and globally.”

The Prime Minister of France Edouard Philippe has previously voiced his goal that Paris will become Europe’s New No. 1 financial hub after Brexit.

“Our goal is to send a strong signal to the world’s business community: Paris is ready. France is back,” said Philippe last year. This cannot be accomplished without streamlining regulation and enhancing competition when it comes to Fintech innovation.

 

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

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Australia and UK set up FinTech Bridge to deepen collaboration between governments, regulators, and industry bodies

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OpenGov Asia | Priyankar Bhunia | March 26, 2018

The Australian Treasurer, the Hon Scott Morrison MP, and UK Chancellor of the Exchequer, the Rt Hon Philip Hammond MP, signed an agreement in London on 22 March, 2018 to establish a FinTech bridge.

The UK-Australia FinTech Bridge will deepen collaboration between governments, regulators, and industry bodies in the two countries. It will also support improved access for Australian FinTech firms to the UK market.

The FinTech Bridge includes collaboration between Australian and UK governments to identify emerging FinTech trends and policy issues, enabling better policy positions. Regulatory expertise will be shared between Australia and the UK, through closer cooperation between the Australian Securities and Investments Commission (ASIC), Australian Transaction Reports and Analysis Centre (AUSTRAC)  and the UK’s Financial Conduct Authority (FCA).

The regulatory authorities will facilitate the entry of FinTech start-ups into each jurisdiction’s regulatory sandbox and explore opportunities for quicker licence processing for FinTech firms that are already licenced or authorised in the other country.

Joint projects will also be undertaken to identify shared approaches and identify links between Australia and the UK.

See:  FCA: Regulating innovation: a global enterprise

Austrade and the UK’s Department for International Trade (DIT) will provide support for FinTech firms looking to expand into the other market. This support includes providing bespoke advice and mentorship to FinTech firms looking to expand into the UK or Australia. They will also provide a ‘one stop shop service’ to enable firms to access legal, regulatory and practical advice about setting up in a new market.

Matchmaking events, meetings and networking opportunities will be facilitated for companies with potential partnership prospects, and introductions to investors will be provided, assisted by specialist teams at Austrade and DIT.

The collaboration also includes promoting engagement between Australian and UK FinTech sector bodies, led by FinTech Australia and the UK’s Innovate Finance, to discuss collaboration opportunities between FinTech businesses.

UK FinTech firms generate £7 billion in revenue annually, employ over 61,000 people and in 2017 raised £1.3 billion of investment. Investment in Australian FinTech in 2016 reached a high of over US$656 million. Australia is also the second largest alternative finance market in the Asia Pacific. Australia’s supportive regulatory settings and high rate of FinTech adoption presents an attractive market for the launch and expansion of FinTech products.

In his speech at the International FinTech Conference, Mr Morrison said, “Thanks to the support of Austrade and the UK’s Department of International Trade, the Bridge will give businesses tailored assistance to navigate the complexities of operating in a foreign market, such as connections for legal, regulatory and practical advice about setting up between the two markets.”

“These agencies will give FinTechs a networking leg-up, while a collaboration between FinTech industry groups will facilitate stronger business-to-business links in the sector. This is a critical aspect needed to foster development in this fast-paced sector.”

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

 

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FCA: Regulating innovation: a global enterprise

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FCA - Financial Conduct Authority, UK | March 19, 2018

Speech by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered at Innovate Finance 2018.

Speaker: Christopher Woolard, Executive Director of Strategy and Competition
Location: Innovate Finance 2018, The Guildhall, London
Delivered on: 19 March 2018

Highlights:

  • Collaboration with international colleagues has been a core part of the FCA’s FinTech story since we launched Project Innovate in 2014.
  • Our regulatory sandbox is supporting firms in reducing the time and cost of getting innovative ideas to market.
  • We’re increasingly hearing a demand from firms to operate internationally, so we’re working with partners from around the world to consider options for a global sandbox.
  • The potential of such a project is huge – from solving global problems like money laundering to reducing the regulatory burden of compliance.

Note: this is the speech as drafted and may differ from delivered version.


FinTech is one of those industries that we can genuinely call a global community. The international dimension of FinTech is inextricable from its success as a sector. And for the FCA as a regulator, the degree to which we seek to work with international colleagues is a defining feature of our work in this space.

In previous years, I’ve had the opportunity to talk here about our innovation work and the launch of our regulatory sandbox. We have worked with over 500 firms through FCA Innovate and around 70 in depth in our sandbox. This has been one of the largest and most complex regulatory sandboxes in the world, involving firms from Singapore, the US and South Africa, amongst other countries. So, as we look to the next stage of our innovation journey, it is only natural that international cooperation should be a key part of the picture.

Today I’d like to talk about this vision and the role that the FCA will play in it.

Future innovation

As many here will know, our innovation story began in 2014 with the launch of Project Innovate. The purpose of Innovate was and remains to help firms tackle regulatory barriers to innovation, be it through clarifying regulatory expectations, examining our own rules or enacting policy changes, to give them space to innovate in the interest of consumers.

We found that the risk of not opening up markets to innovation was bigger than the risk of taking that leap.

Central to this is our regulatory sandbox, a ‘safe space’ where businesses can test innovative products, services, business models and delivery mechanisms in the real market, with real consumers.

See:  NCFA: Canada Needs a Harmonized Securities Environment as Current Provincial Approach is a Fintech Innovation Killer

We were the first regulator to attempt a project of this type. And in order to make it work we had to change perceptions about the role of the regulator – for both firms and ourselves. We had a big job to do to ensure firms found us easy to work with and knowledgeable about the challenges they face in bringing new products to market.

The shift in mindset that was required was significant too: from the traditional regulator’s standpoint of ‘what is the risk?’ to asking ‘what is the risk of not doing this?’ And when we asked ourselves that question we found that the risk of not opening up markets to innovation was bigger than the risk of taking that leap.

The sandbox has been as much an experiment for us as it is for the firms themselves. But, I have to say, for a calculated risk, this bet has really paid off. Since we launched the sandbox in 2016 we have supported firms in reducing the time and cost of getting innovative ideas to market. In fact, 90% of firms from our first round of applications have gone on to market, with many firms finding it easier to get funding as a result of participating in the sandbox.

We’ve seen take-up by large firms as well as start-ups, who may not have had the confidence to try new approaches without the security of the sandbox. And through sandbox firms being closely supervised in their test phase we’ve learnt an enormous amount about how new technologies are being applied.

So we know this approach is working. The question is, is it enough? Over the last couple of years, we’ve seen a trend emerge which has become impossible to ignore. Increasingly we’re hearing from firms a demand to operate globally, to grow at real scale and pace. This would involve working with other regulators across the globe to conduct tests at the same time.

Our whole history with Innovate has been about doing things that regulators historically haven’t done.

Through the sandbox we’ve seen 30 applications from international firms and have gone on to support 11 of them – many of which are also in other countries’ innovation programmes. It’s clear which way the wind is blowing.

Nor is international collaboration around FinTech new to us. Over the last few years, we’ve signed ten cooperation agreements with eight different jurisdictions, allowing us to share market trends, collaborate on projects and refer innovative firms across markets.

But currently there is no joint sandbox programme with other regulators for firms to participate in. Such a project represents new territory. Breaking new ground requires an element of risk, not something, as I’ve said, that regulators are generally comfortable with. But our whole history with Innovate has been about doing things that regulators historically haven’t done.

To face those risks, we have to ensure we have the right controls, all the while bearing in mind the risk of not acting. So we’re up for the challenge.

Naturally, though, we want to do our homework. That’s why last month we invited stakeholders to share their views on what a global sandbox could look like. The responses – from regulators to start-ups, challengers to large firms, trade bodies to think tanks – make for fascinating reading.

As expected, there is lots of interest in the idea of cross-border testing; in the benefits this could bring, such as reducing cost and complexity, and accelerating expansion into other jurisdictions – especially for smaller firms who are keen to expand internationally.

See:  SCC hears Canada and Quebec AGs arguments on national securities regulator

In terms of the jurisdictions that respondents are keen to see included, the US featured high up the list. South America, Australia, Hong Kong, Singapore and Europe also made an appearance. African countries, like South Africa and Kenya, also featured in a number of responses. This should come as no surprise when you consider how new models of banking have grown up there.

When it came to how a global sandbox might work in practice we saw some really creative suggestions coming through – from a ‘global dictionary’ which covers data needs across different countries to a joint mission statement from participating regulators with agreed criteria and consumer safeguards.

And overseeing it all, it was suggested, could be a ‘college of regulators’ – a consortium of representatives from participating regulators, something that corresponds with our own thinking.

So, what do we think?

  1. We should be practical. Establishing a global sandbox is an immense undertaking and we have to be realistic about the task at hand. In some quarters, there could be an aspiration for global standards. The logic is clearly there, but my strong suspicion is that it would take twenty years to negotiate and in a fast-moving market would be nineteen years and six months out of date when we got there.
  2. We should work with and through international bodies where we can – we are already working closely with international colleagues in IOSCO, for example. To avoid running before we can walk, we might want to start with those jurisdictions which already have established sandboxes or innovation hubs.
  3. The model should allow some room for us to experiment with what works. So we could see a range of sandbox tests. For example, a single test in one country collecting data for multiple interested regulators. Or simultaneous testing in more than one country.
  4. The membership should be flexible. We should not assume that all regulators would be engaged in every test, although we should, of course, share knowledge and learning widely.
  5. Most of all - the key to all of this is collaboration – this has to be a joint effort across international regulators, not a UK global sandbox.
Collaboration will run through the next chapter of the UK’s FinTech story like a stick of rock

Because, clearly, we can’t do this alone. While we may be the ones kicking off the discussion, we won’t have much success if we’re just talking to ourselves. So now is the time to bring fellow regulators around the world into the conversation. In fact, collaboration will run through the next chapter of the UK’s FinTech story like a stick of rock.

Later this week we start work with interested regulators, including colleagues across Europe, the US and Far East, on a blueprint. So there’s real momentum behind this and we hope that before long the ambition of a global sandbox will be a reality.

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

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Binance Facing Warning From Japanese Regulator

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Crypto Globe | John Medley |  March 22, 2018

The Japanese securities regulator, the Financial Services Agency (FSA), is planning to warn Binance under the ‘Payment Services Act’ that it must stop operating in Japan without a license.

According to a source from Bloomberg, the world’s largest cryptocurrency exchange has several staff in Japan and has been expanding operations into Japan without seeking permission from the FSA and other necessary regulators. Currently Binance does not accept fiat deposits and requires no KYC/AML checks.

In January, Binance told Bloomber that it was working on acquiring a license and that Binance was "engaged in constructive dialogue".

According to a report from Nikkei the exchange must secure permission from the FSA or they will receive a warning, which will likely be followed by a criminal complaint. According to the report from Nikkei, the FSA will press criminal charges if the company does not register.

Japan Tough But Fair

The Japanese regulators have been clamping down on cryptocurrency exchanges in the country following the Coincheck heist in January which saw $500 million in NEM.

In total 16 exchanges have received licences to operate within Japan, however, two exchanges were forced to suspend all services for a month due to inadequate security procedures. Five other exchanges were told to produce a ‘Security Improvement Plan’ by March 22nd.

See:  NCFA Canada’s submission to Finance Canada (March 2018): Urgent Need for Regulatory Change and Government Support

However, the FSA has maintained a positive stance towards crypto exchanges on the whole. As long as the exchanges register and adhere to strict security controls the exchanges are encouraged to operate. Last year Japan declared Bitcoin a form of legal tender which has paved the way for merchant adoption of cryptocurrency.

Will “Binance Chain” Solve Problems?

Binance recently announced it will be launching a decentralised exchange to operate alongside its current operation. The Binance team has been investing resources to develop a “tailored blockchain”, for trading digital currencies. The new network is dubbed “Binance Chain” and it is a step forward in building a decentralized exchange (DEX).

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

 

 

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