Regulation: FinTech, Mind the Gap

The Covid pandemic has represented an unprecedented challenge for the global economy. “This been particularly evident in the financial sector, where digital financial services (DFS) and fintech have expanded to facilitate continued transactions at arms-length,” the World Bank points out in introducing a new study published with the Cambridge Centre for Alternative Finance to understand the impact of COVID-19 on the regulation of FinTech and regulatory innovation initiatives.

The pandemic, however, has only accelerated the pace of a change already in place. For example, research confirm in countries like Malaysia “equity crowdfunding is providing opportunities for women and young entrepreneurs who now make up an estimated 70 per cent of the Malaysian firms funded online.”

Nevertheless, with opportunities come also risks which, in a crisis like the one we live into, can only increase because of the vulnerability of people. Here comes the importance of regulators to protect customers, being aware that due to the scale of the crisis, global efforts and local solutions are required, stresses the Cambridge Centre for Alternative Finance.

One of the main challenges for this to happen is communication and coordination. Indeed, one of the main findings of the study points out that difficulties in pursuing satisfactory levels of communication and coordination for planning and implementing regulatory innovation initiatives can prevent sustainable change to happen. For example, respondents noted challenges regarding difficulty with external communications (43 per cent), coordination with other domestic agencies (43 per cent), reprioritisation of funding and resources (34 per cent), required speed of delivery (30 per cent) and restricted access to and availability of necessary technology (25 per cent). Respondents from high Covid-19 stringency jurisdictions reported a higher degree of challenges across the board. Central banks indicated more challenges regarding the speed of delivery for regulatory innovation initiatives (56 per cent) compared to other financial regulators (15 per cent).

That is of particular interest for the most fragile and poorest countries where the access to finance is limited. That is why, “as innovation continues to move at pace, it is crucial that regulators, policymakers and industry work together to ensure it is done in a secure way that protects consumers and encourages competition,” James Duddridge MP said. 

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