Global fintech and funding innovation ecosystem

How regulatory collaboration transformed markets

Innovate Finance | April, 2020

fintech and regulators collaborate - How regulatory collaboration transformed marketsGlobal initiatives to bring fintechs into the regulatory ecosystem are having an enormous positive impact on innovation. Better still, the successes enjoyed to date are set to be just the beginning.

In the decade following the global financial crisis, domestic watchdogs around the world brought in dozens of new rules designed to refine risk-taking, improve compliance oversight and stimulate confidence in global markets.

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But for many in the financial industry, regulators became an easy target, criticised for being heavy handed with new regulations.

At the same time, some have attracted praise for their work in developing markets, stimulating innovation and encouraging new market approaches – such is the case with the UK financial regulator’s sandbox initiative.

History of the sandbox

Regulatory sandboxes, or “innovation hubs” have emerged as testing grounds for fintechs globally. The sandbox provides a controlled environment for the live testing of new technologies and financial products by both authorised and unauthorised firms, under the supervision of the regulator.

In the UK, the FCA defines its regulatory sandbox as a platform that “allows businesses to test innovative propositions in the market with real consumers.”

The initiative was first introduced in the UK in a report back in November 2015, before initial applications were accepted in June 2016. The impact on the British fintech scene has been considerable.

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When it comes to the role that domestic regulators and global standards bodies play in setting minimum service obligations for fintechs, sandboxes have shown that regulation does not have to hinder innovation. In fact, the FCA sandbox approach has shown how a regulatory approach can foster both competition and trust.

Global appeal

The sandbox model has become so widely appreciated that it is offered in several jurisdictions across Europe and Asia.

“We’ve had quite a lot of conversations with the Dutch regulator, the AFM [Dutch Authority for the Financial Markets],” Mr Sluys explains. “They have a very similar model and have been very helpful so far, on our journey.”

Like the FCA, Singapore has also been widely praised for its regulatory approach in stimulating financial innovation. In November last year, the Monetary Authority of Singapore (MAS) announced a collaboration with consultancy group Deloitte and S&P Global Market Intelligence, to develop a prototype for an industry-wide fintech research platform.

The resulting platform will assist investors and financial institutions in connecting with fintech start-ups that they can partner with or invest in.

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MAS also launched the ‘Sandbox Express’ in August 2019, which should provide firms with faster market testing of products and services.

Ms Ghosh explains: “I think the predominant purpose of the private sector when it comes to cohorts is not to give regulatory flexibility. It is to see whether an idea is worth investing in further, accelerate the growth of the company by providing it with additional resources… and then working out whether it’s worth acquiring.”

“One thing we see very clearly is that banks and asset managers who operate innovation programmes inside their organisations tend to do better,” Mr Toms says.

He cites the Barclays Rise initiative, which champions fintechs, as an example of “a really strong innovation team and approach”. Barclays Rise has been rolled out across Mumbai, London, New York and Tel Aviv.

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