There’s a dearth of black investors in venture capital’s upper echelons and little investment in start-ups with black founders
Principles for Businesses 
Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Uncategorized
OSFI launches consultation on technology risks in the financial sector (Deadline: Dec 15)
OTTAWA, ON, Sept. 15, 2020 /CNW/ - Today the Office of the Superintendent of Financial Institutions (OSFI) launched a three-month consultation with the publication of a discussion paper, Developing financial sector resilience in a digital world. The paper focuses on risks arising from rapid technological advancement and digitalization, as these trends impact the stability of the Canadian financial sector.
This consultation supports OSFI's strategic objective to ensure that federally-regulated financial institutions and pension plans are better prepared to identify and develop resilience to non-financial risks before they negatively affect their financial condition. While technology is a key enabler for financial institutions and financial consumers, its widespread use and rapid adoption can pose risks in many different areas of the business if not properly understood and managed.
See:
Fintech & Cybersecurity: Key Risks and Solutions
Cyberattacks now cost small companies $200,000 on average, putting many out of business
Cybersecurity Body of Knowledge
Understanding the financial sector's use of technology and how technology risks are managed is central to this consultation. OSFI's discussion paper focuses on the risk areas of cyber security, advanced analytics (artificial intelligence and machine learning), and the use of third party services such as cloud computing.
"Digital technology continues to transform the financial sector. The pace of change has only increased since the pandemic began. This consultation will help OSFI to refine its regulatory and supervisory framework in a complex, rapidly changing digital world. The contributions received and the discussions that will occur will support effective risk management and enhance resilience in the Canadian financial sector." Ben Gully, Assistant Superintendent, Regulation Sector
OSFI is seeking feedback from a wide range of stakeholders including financial sector participants, technology experts, and academics. Their input will help guide OSFI's regulatory and supervisory approaches to technology risks that meet our mandate of protecting depositors, policyholders and private pension plan beneficiaries while allowing institutions to compete and take risks.
Associated links
Developing financial sector resilience in a digital world: Selected themes in technology and related risks (discussion paper)
Strengthening Third Party Risk Management (infographic)
OSFI welcomes comments and submissions on the discussion paper by December 15, 2020. Feedback should be sent to Tech.Paper@osfi-bsif.gc.ca.
View: source
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Evolving to Work Better Together: Public-Private Partnerships for Digital Payments
IMF | By Tobias Adrian speech | July 22, 2020
I will focus on public-private partnerships to provide central bank digital currency — CBDC. The goal of these partnerships is to preserve comparative advantages: for the private sector to interface with customers and innovate, and for the public sector to regulate, supervise, and ultimately provide trust. In so doing, I cannot emphasize too strongly the importance of regulatory clarity and consistency — domestically and internationally — to encourage innovation.
Note that public-private partnerships are not new, even for the provision of money. Cash is designed by central banks but distributed by commercial banks. And most of the money we use — in the form of commercial bank deposits — is created by the private sector; is a private liability; and is settled in great part through private clearinghouses, all under the strict supervision of the central bank.
So what would a public-private partnership look like for the provision of CBDC? Two models stand out.
The first model is “synthetic CBDC” (or “sCBDC,” for short), introduced last summer in my paper with Tommaso Mancini-Griffoli. And the second model — explored by various central banks, including the People’s Bank of China (PBOC) — is “two-tiered CBDC.” Both are increasingly debated, while the initial concept of “full-fledged” CBDC, in which the central bank is the sole developer of services, also remains an option, depending on country circumstances.
See: FFCON20 This Week: Thur, August 13: CURRENCY WARS, DIGITAL ASSETS & DEFI
The two models of partnership differ according to where the boundary is set between the public and private sectors. Both models agree that customer interaction — including customer due-diligence, as well as wallet design and currency distribution — should be left to the private sector. The central bank, instead, would be charged with regulation and supervision.
But which side of this public-private partnership should issue currency and settle transactions? The two-tiered model argues for the central bank. The sCBDC model, instead, opens the door to the private sector. Digital coins, denominated in the domestic unit of account, would be privately issued, although fully backed with central bank reserves. The central bank would license these operators and carefully supervise them. In addition, legal structures would ensure that user funds, held as central bank reserves, would be isolated from the potential bankruptcy of sCBDC operators.
So both models offer an especially liquid and safe payment instrument.
The big difference is the degree of diversity and innovation in the currency itself. In the two-tiered model, the central bank picks one technology and upgrades it occasionally. That choice colors the innovations that come on top, as the currency is embedded in digital applications and spurs new assets. We can imagine, for instance, smart contracts used to program the contemporaneous exchange of DLT-based currency and bonds.
The sCBDC model, instead, encourages private-sector-led innovation at a more fundamental level. Private companies would compete to provide the most user-friendly form of currency and the most efficient settlement platform. Such dynamic innovation could be extremely valuable, given the pace of technological change, and given many central banks’ limited experience in providing retail services.
See: Central banker bulletin: COVID-19 cash concerns to drive digital currency
When a technology moves slowly, it is fine to set it in stone. Think of good old dark-room photography: We all knew what made the best film. The enabling technology was set. A great camera could be kept for years. But when digital photography was introduced, it was like jumping into a moving stream. Even great cameras quickly became obsolete as sensor technology rapidly evolved. And the diversity of cameras exploded as each innovated along a different dimension. In that environment, to have the public sector pick the winning technology would be difficult at best, probably costly, and potentially irrelevant as the private sector continued to innovate.
Even then, in the field of payments, innovation and experimentation cannot come at the cost of instability. Central banks must oversee the safety and soundness, and the operational resilience, of currency providers — as well as ensure financial integrity, financial stability, and the safety of customer funds.
These are challenges, but their nuances are well known. Central banks are used to fulfilling these objectives, even if some retooling may be necessary to evaluate operational risks stemming from new technologies, for instance.
However, central banks would also face new challenges specific to partnering with private firms. I will point out three specific challenges.
The first is the interoperability of coins. This is specific to sCBDC. Interoperability is important for users, so holders of different coins can pay each other. And it is important for market contestability, so new firms can enter and compete on a level playing field. As sCBDC gets off the ground, firms may seek interoperability to build up their user bases and stoke a dynamic developer community. However, interoperability is not always time-consistent. As soon as an sCBDC provider reaches scale, it will try to foster its own developer and user ecosystem by limiting interoperability. So central banks need to introduce and enforce standards, potentially through a consortium with private-sector companies.
See: Virtual Panel via Toronto Centre (Apr 17): Using Stable Coins to Facilitate Financial Stability and Inclusion Under Unprecedented Times
The second challenge is related, and also concerns sCBDC. Market contestability equally relies on ensuring that the bundling of coins with social media or other platforms does not lead to unfair competition. Otherwise, the strong network effects of those platforms would be inherited by the coins. Central banks will thus have to collaborate with anti-trust authorities to strengthen regulation, embed rules in sCBDC licenses, and supervise operators.
The third challenge is to ensure payment system stability — namely, the resilience of business models to macro-economic shocks, including the policy cycle. Central banks will have to evaluate the viability of business plans, as well as the impact of design choices on firms’ bottom lines. For instance, sCBDC operators must be resilient to severe downturns and the low interest rates that accompany them. Even if an operator exits, the market must be sufficiently diversified for others to pick up the slack.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Black tech founders say venture capital needs to move past ‘diversity theater’
Washington Post | | June 10, 2020
There’s a dearth of black investors in venture capital’s upper echelons and little investment in start-ups with black founders
But the fact that a nine-figure fund in which black investors have a vote came together in a day “suggests to me that the capital is there and the solution is in front of us, and what was missing was the will,”
said Kanyi Maqubela, a managing partner at Kindred Ventures, which invests in start-ups in their first round of financing.
“It’s not a lot, but it’s also more than anyone else has ever done,” said Sarah Kunst, a black investor and managing director of the firm Cleo Capital, an early-stage venture capital fund investing in female founders.
See: For immigrant entrepreneurs, financing is a big problem
A few hours after SoftBank’s announcement, the investment firm Andreessen Horowitz, an early Facebook investor with $14 billion under management, announced its own initiative — the Talent x Opportunity Fund, which started with $2.2 million in donations from the firm’s partners and will focus on offering training and seed capital to entrepreneurs who “lack the typical background and resources.”
Recent efforts mask years of underinvestment, particularly in black women. There is also a dearth of black investors in venture capital’s upper echelons — where leaders make investment decisions that shape the start-up landscape. Venture capitalists in tech dictate who gets funded, who gets rich and who is served by the technology that shapes people’s daily lives.
Yet only 1 percent of venture capital dollars went to black start-up founders in 2018, according to a study conducted by Silicon Valley Bank and others.
The number of black decision-makers in venture capital in 2018 dropped to 1 percent — representing just seven black people at the 102 largest venture capital firms in the United States, according to an annual survey by the Information, a tech-news outlet. The funds surveyed have at least $250 million under management, which does not include Kindred Ventures or Cleo Capital.
Despite their publicized efforts, Andreessen Horowitz does not have a general investment partner, which comes with check-writing privileges, who is black, according to its website. (Chris Lyons, a black investment partner at Andreessen Horowitz, leads its Cultural Leadership Fund, which links portfolio companies with black celebrities.) SoftBank’s Opportunity Fund will be co-led by Shu Nyatta, a black investor and founding member of SoftBank’s Vision Fund who left in 2019 to become managing partner of SoftBank Latin America Fund. But aside from Nyatta, none of SoftBank’s funds have a black investment partner.
Andreessen Horowitz did not respond to repeated requests for comment. SoftBank declined to comment.
See: Banking Must Take A Stand On Tough Social Issues
“Founders and entrepreneurs of color have so much potential, but they face unfair barriers that white founders don’t face,” SoftBank Chief Operating Officer Marcelo Claure wrote in a memo to employees about the new fund. “This is our opportunity remove those barriers for a new generation of founders. But we also know we need to do better internally.”
In recent weeks, however, as Black Lives Matter protests throughout the country have forced a reckoning with profound racial injustices, the venture capital industry is looking at its track record on race in a new light.
“The culmination of all of these macro events have turned into an explosion of conversation in very real time and in a very public way,” said Reggie James, founder of a new social network called Eternal, which raised funding from Precursor Ventures, an early-stage investment firm founded by well-known black investor Charles Hudson, as well as Bolt, Samsung Next, angel investors from Snap and Giphy, and others.
James argued last week in an essay called “The Myth of Blackness in Venture” that social media pressure to hire a black partner ignored the intricate structural factors that have kept venture so insulated. For instance, venture capital is a relations-based industry, and thus most general partners get to choose whom they invite into the fold.
“Make the hire, send the wire”
Five years ago, when tech giants were pressured into releasing reports on the gender and race breakdown of their workforce, venture firms were also challenged by the press and their limited partners, the institutional investors and pension funds that provide money to invest. Rather than making institutional changes, firms responded with title inflation, said Elliott Robinson, a general partner at Bessemer Venture Partners who calls such efforts “diversity theater.” Rather than hire and promote black people into leadership positions, associates were bumped up to partners, but without any change in their responsibilities, Robinson said.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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CRM in 2020: Creating a Competitive Advantage for Your Business
Guest Post | May 20, 2020
Small and high businesses all over the world have already understood the benefits of CRM. It provides an important feature that is crucial for every business: competitive advantage will scale up your business. Every business aims to organize effective work with no time-wasting on processes that don't bring the desired result.
Luckily, the number of platforms that enable businesses to work more efficiently is big. Creatio.com is an effective CRM system that features strategies, tools, and technologies for acquiring customers and developing a long-lasting relationship with them. But what is CRM and why such a huge number of organizations use it? CRM meaning is customer relationship management and aims to turn new clients into loyal customers through better and clearer service.
In the following part of the article, we are going to talk about how a CRM system can help businesses to compete.
Ways CRM Helps To Gain Competitive Advantage in 2020
What does make your company stand up? Do you offer more affordable prices, better customer service, or higher quality products? Even if your business is successful, you will still want to improve it to deliver even better service or products to your clients. There is one solution that can cover all gaps, increase sales, and keep customers satisfied. Learn more about features that CRM provides for competitive advantage in 2020:
See: How Small Businesses Can Compete By Leveraging Data Insights
The right tools for sales
So many times businesses practice various tools hoping to convert quotes into sales. Unfortunately, organizations end up spending a lot of money on innovations and see no result. CRM has all the right tools for the sales team to succeed. CRM for business offers planned sales, they can focus on turning quotes, invoices, and orders into sales rather than wasting time on reports.
Low-code for flexibility
There is nothing as important as being flexible and being able to adapt to changes quickly. Modern CRM systems allow businesses to develop software themselves. Businesses can automate their ideas almost immediately without hiring software developers and spending extra money. Low-code doesn't require special knowledge and experience. The innovation enables the development of apps by using visual interfaces and simple logic. Low coding is not only an exciting process of creating a convenient software for your customers but a great ability to be agile and quickly adapt to changes.
Exceptional customer service
When you define CRM, you understand that it's all about relationships with your customers. By providing personal service, you will keep your clients happy. CRM has all the necessary tools to keep your customers valued: in this case, they will unlikely look for better solutions. CRM processes enable happy customers to return to your organization and recommend it. Customers who are treated with respect and understanding feel that their needs are valued, therefore, they trust such an organization. As a result, CRM helps to build a long-lasting relationship with your consumers.
Real-time access
CRM system allows your organization to be aware of customers' needs 24/7. Businesses can have access to information and provide responses to clients' requests at all times. It's a convenient model of productive business that meets customers' requirements quickly and effectively, therefore, exceeds their expectations and becomes a truly competitive organization on the market.
Conclusion
From the article, you had a chance to learn what does CRM stand for and what features it offers that allow businesses to compete. Customer relationship management is an irreplaceable tool that scales up startups and helps established organizations to attract new customers and gain their respect in a short time.
See: Dealing with a crisis: FinTech versus Bank
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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EU rules to boost European crowdfunding, platforms agreed
European Parliament | Dorota Kolinska | Dec 19, 2019
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A single set of rules will apply to crowdfunding services in the EU, up to EUR 5 000 000
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Strict rules to protect investors from financial losses
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Member states responsible for authorising and supervising crowdfunding providers
EP negotiating team reached a deal with the Council on Wednesday on EU-wide rules to help crowdfunding services function smoothly and foster cross-border business funding.
The uniform set of criteria will apply to all European Crowdfunding Service Providers (ECSP) up to offers of EUR 5 000 000 (from EUR 1 000 000 proposed by the Commission), calculated over a period of 12 months per project owner, the agreed text says.
To enable small companies or start-ups to use the crowdfunding option, the shares of certain private limited liability companies, which are freely transferable on the capital markets, were included in the scope of the legislation.
The legislation will be accompanied with additional safeguards and clarification on how investors should be informed of the consequences of their choices.
Protecting investors: clear information and transparency
Investors would be provided with a key investment information sheet (KIIS) drawn up by the project owner for each crowdfunding offer, or at platform level. Crowdfunding service providers would need to give clients clear information about the financial risks and charges they may incur, including insolvency risks and project selection criteria.
See: NCFA advocacy initiatives
In addition, investors identified as non-sophisticated would be offered more in-depth advice and guidance, including on their ability to bear losses and a warning in case their investment exceeds either 1000 EUR or 5% of their net worth, followed by a reflection period of four calendar days.
Authorisation and supervision
Negotiators decided that a prospective ECSP would need to request authorisation from the national competent authority (NCA) of the member state in which they are established. Through a notification procedure in a member state, ECSP would also be able to provide their services cross-border. Supervision would also be carried out by NCAs with the European Securities and Markets Authority (ESMA) facilitating and coordinating cooperation between member states. ESMA’s role, and to a lesser extent that of the EBA, was strengthened in areas such as binding dispute mediation, data collection from NCAs in order to produce aggregated statistics and development of technical standards.
"I am satisfied that we came to an agreement on the final version. I hope that, in a couple of years, investors will see this agreement as a good 2019 Christmas gift", said Eugen Jurzyca (ECR, SK), rapporteur for crowdfunding regulation.
"This regulation will allow crowdfunding service providers to give SMEs, start-ups and innovative companies new opportunities. New projects will have better access to finance that will boost the real economy", said Caroline Nagtegaal (Renew, NL), rapporteur responsible for file on “Markets in financial instruments: crowdfunding service providers”.
Next steps
Technical work on the text is now under way by the services of the three institutions. Afterwards, the agreement will have to be approved by the Economic Affairs Committee and the Parliament as a whole.
Source: European Parliament
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Principles for Businesses
Robin Ford Consulting | Jan 6, 2019
Principles for Businesses
When hearing the phrase “principles for businesses” most of us working in the financial services sector think first of the high level requirements and high level expectations imposed on financial services businesses by regulators. They really matter – partly because they are (or should be) requirements that are enforced, and partly because policy makers and regulators understand very well that if these requirements are not met, regulated firms will not be fully competent to meet other more specific legal requirements and to service markets and customers fairly and well.
What are they?
- Integrity: conduct business with integrity.
- Skill, care, & diligence: conduct business with due skill, care, and diligence.
- Management & control: take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
- Financial prudence: maintain adequate financial resources.
- Market conduct: observe proper standards of market conduct.
- Customers' interests: pay due regard to the interests of customers and treat them fairly.
- Communications with clients: pay due regard to the information needs of clients, and communicate information to them in a way which is clear, fair, and not misleading.
- Conflicts of interest: manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
- Customers - relationships of trust: take reasonable care to ensure the suitability of advice and discretionary decisions for customers who are entitled to rely upon its judgment.
- Clients' assets: arrange adequate protection for clients' assets when it is responsible for them.
- Relations with regulators: deal with its regulators in an open and cooperative way, and disclose to the appropriate regulator appropriately anything relating to the firm of which that regulator would reasonably expect notice.
Source: Handbook of the UK Financial Conduct Authority
See: Lagging regulation, consumer trust inhibiting FinTech adoption in Canada
How are they applied?
In line with its risk-based approach to supervision, a conduct regulator will make clear that firms should apply the principles proportionately in a way that makes sense for their specific business. Firms must also demonstrate how they have achieved compliance.
What are the benefits?
Firms that are used to box-ticking, black letter law compliance will find this approach difficult at first, but achieving it, with the necessary adjustments over time as the business evolves, will pay big dividends. First, of course, they will be compliant but, even more important, demonstrated compliance should enable the regulator to be more relaxed about supervision and impose fewer formal and informal reporting and other discretionary requirements on the firm. Also, if the firm breaches a more specific requirement, the regulator may decide not to take enforcement action on the grounds that systems and controls were adequate or, if it does, any penalty that would otherwise be imposed may be reduced.
Second, these principles really are the essence of a well-run, successful business. In its supervision, the regulator will therefore focus on a firm’s internal culture, its business models, and the way the firm treats its customers (taking a risk-based approach). As the UK FCA puts it: “…culture is about encouraging and incentivising good things, not just stopping bad things from happening” (Speech: https://www.fca.org.uk/news/speeches/transforming-culture-financial-services).
See: Social equity must be central to urban tech innovations
Regulators want to prevent misconduct, not just clear up the messes after they happen, by anticipating and pre-empting poor conduct. This is exactly what firms themselves should be doing, whether or not regulators are watching them. One could call this self-regulation, or just good business. As one head of compliance for a very large global financial services conglomerate said to me once, she would not be able to do her job if she did not start with these high-level principles in every jurisdiction within her portfolio.
Conclusion
All financial services firms everywhere should strive to meet these high-level requirements. Businesses cannot serve markets and their customers well if they are not compliant with both the letter and spirit of the principles. And, when entering new markets, they are a very good place to start.
Robin Ford is a former Chief Counsel, Insurance, UK Financial Services Authority and former Executive Commissioner, British Columbia Securities Commission. With some minor differences, this article was first published in the Global Business Counselling newsletter RESPONSIBLE BUSINESS in December 2019.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Cambridge: Global Regulator Survey Results – Regulation of Alternative Finance is Key to Make Sector Safe to Scale for the Masses
Crowdfund Insider | | Oct 21,2019
The Cambridge Centre for Alternative Finance (CCAF), part of the Judge School of Business at Cambridge University, has partnered with the World Bank to publish a report on the global regulation of alternative finance and innovative Fintech firms. According to the new report, the regulation of alternative finance will increase significantly over the next two years, as indicated by a global survey of 111 regulatory jurisdictions.
Equity Crowdfunding, Peer to Peer Lending & Initial Coin Offerings
As various forms of alternative finance emerge, typically regulators are slow to update or create new rules as they research and dissect digital services. More specifically, access to capital platforms such as equity crowdfunding, peer to peer (marketplace) lending and initial coin offerings (or token offerings), have digitized investment opportunities and the capital-raising process. These three types of finance are the focus of this report. The CCAF study seeks to better comprehend alternative finance via empirical information gleaned from regulators and other public authorities.
Alongside AML/KYC requirements, regulators’ main priorities are said to be:
“… protections against misleading promotions or the misuse of client money. Depending on the activity in question, between 93% and 100% of regulatory frameworks impose requirements in relation to the clarity and fairness of promotions; between 100% and 88% impose sector-specific AML/KYC requirements, and over 80% impose the segregation of client assets, where applicable.”
While regulators and other policymakers see the potential for new forms of finance they simultaneously understand the need to better regulate the sector for the “mass market” including individuals and mid to small businesses (MSMEs).
See:
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FCA reveals findings from first cryptoassets consumer research
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Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?
CCAF explains:
“Despite a boom in alternative finance regulation since 2015, the relevant activities are still not formally regulated in most jurisdictions – only 22% of jurisdictions formally regulate P2P lending, as opposed to 39% for ECF [equity crowdfunding] and 22% in the case of ICOs [initial coin offerings]. Where these activities are regulated, some jurisdictions apply to them pre-existing regulatory frameworks (e.g for securities). More often, they are subject to bespoke regulatory frameworks, particularly in the case of P2P lending (12% of jurisdictions) and ECF (22% of jurisdictions).”
While not the norm today, CCAF predicts that by 2021 most jurisdictions will have bespoke rules for investment crowdfunding and over a third will have new rules for peer to peer lending and ICOs.
Creating new rules or updating old ones is not always an obvious task. Regulators, as one would expect, look towards other jurisdictions to gauge and compare rule-making progress and development.
While fraud and capital loss are big concerns, regulators frequently lack the expertise and other resources to move quickly and better regulate. Innovative policy approaches have helped in their task. CCAF states:
“Regulators are thus looking to more innovative solutions to overcome these limitations in regulation and supervision. Among respondent regulators, 22% have created regulatory sandboxes, 26% have innovation offices and 14% have active Regtech/Suptech programs. Based on regulators’ responses, the number of sandbox and Regtech/Suptech programs could double and triple respectively in the coming years. In terms of sheer numbers, it seems that innovation offices that have the most quantifiable impact to date, having assisted twelve times as many firms as sandboxes – over 2,100 in total, against just 180 for sandboxes. However, proponents of the sandbox might argue that for particular ‘policy-testing’ orientated sandboxes, the purpose is not to increase the number of innovative firms supported but to facilitate policy learning, design, and review.”
See: Canadian fintech adoption rate hits 50 per cent, but still trails global peers: EY
Cambridge Centre for Alternative Finance | Oct 2019
Highlights from the report
- Alternative finance is still typically unregulated – but bespoke regulation is catching on. Despite a boom in alternative finance regulation since 2015, the relevant activities are still not formally regulated in most jurisdictions – only 22 per cent of jurisdictions formally regulate P2P lending, as opposed to 39 per cent for ECF and 22 per cent in the case of ICOs. More often, they are subject to bespoke regulatory frameworks, particularly in the case of P2P lending (12 per cent of jurisdictions) and ECF (22 per cent of jurisdictions).
- The potential of alternative finance speaks to a new set of regulatory objectives.
Policymakers globally are keen to explore the promise of alternative finance. A clear majority are optimistic about its potential to improve MSMEs' and consumers' access to finance (79 per cent and 65 per cent respectively) and stimulate competition in financial services (68 per cent). Such expectations chime with regulators' emerging priorities, as many now have statutory objectives to support financial inclusion, economic policies or competition. While regulation is not the norm today, by mid-2021 most jurisdictions will be regulating ECF and more than a third intend to regulate P2P lending and ICOs; bespoke frameworks will likely become even more common. - Benchmarking drives global regulatory change.
Regulatory benchmarking is used by more than 90 per cent of regulators when reviewing alternative finance regulation, and lessons learned from other jurisdictions have prompted changes in regulation more frequently than any other trigger (56 per cent to 66 per cent of regulators, across the three activities). The most benchmarked-against jurisdiction is the UK, followed by the USA and Singapore, but emerging markets such as Malaysia, the UAE and Mexico also rank among the top 10. - Alternative finance regulation is about making the sector safe at scale.
Alternative finance regulation seeks to make the sector fit for the mass market, including both individual investors and MSMEs. Ensuring liquidity or minimising the potential for capital losses do not appear to be prioritized over those goals. This may be an indication of how regulators interpret their consumer protection mandates in relation to alternative finance.
See: ‘Underwhelming’ financial services sector contributes to lagging productivity: report
- Alternative finance regulation isn't 'light touch'.
There is little evidence yet of regulators purposefully creating light-touch regulatory frameworks for alternative finance. If anything, purpose-built regulatory frameworks tend to have more obligations in place than pre-existing ones – out of 20 potential obligations examined in the survey, the average bespoke frameworks for P2P lending or ECF featured nine, against five for pre-existing ones. For ICOs, the balance was five versus three. They tend to prioritise checks on investor exposure, rigorous due diligence on fundraisers, client money protection and appropriate online marketing standards. - As supervision stretches their resources, regulators are turning to innovation.
Alternative finance supervisors see fraud, capital loss and money laundering as significant risks. Enforcement cases are also common, particularly in unregulated ECF and ICO sectors. Regulators are also looking to more innovative solutions to overcome these limitations in regulation and supervision. Among respondent regulators, 22 per cent have created regulatory sandboxes, 26 per cent have innovation offices and 14 per cent have active RegTech/SupTech programmes. - Alternative finance regulation needs better support and a stronger global evidence base.
To design regulations for alternative finance, regulators have thus received support from a wide range of sources. Most common is for regulators to be supported by multilateral institutions such as various development banks (23 per cent), followed by their peers, for instance, through associations of financial regulators (17 per cent). Nevertheless, 77 per cent of regulators would like more support. Comparing how often sources of support are currently available and desired, there are sizeable gaps. The gap appears larger in the case of support from academics: 13 per cent have received this, but 61 per cent would like to. - Emerging-market regulators highlighting new regulatory objectives in regional clusters.
Most regulators in Sub-Saharan Africa, Latin America and the Caribbean now have statutory inclusion objectives, while regulators in Latin America are more likely than their peers elsewhere to have competition objectives. Regulators in lower income jurisdictions are twice as likely as those in high income jurisdictions to be tasked with supporting governments' economic policies (42 per cent vs 20 per cent), and those in Sub-Saharan Africa are about three times as likely (64 per cent).
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