Licensing, transparency and preventing barriers to entry

A characteristic of a competitive market is the relatively free-flowing entry and exit of participants. Capitalized entrants should be able to bring new use cases, technologies or reach un and underserved parts of the public, as long as they adequately monitor and mitigate the risks involved, while unhealthy institutions should exit in an orderly fashion. In a competitive scenario, businesses will strive to differentiate their products from rivals, bringing more choice to consumers¹ .

Nevertheless, market entry and innovation can be hindered by institution-based licensing regimes, which typically impose uniform regulatory burdens based on the type of entity—such as banks or insurers—rather than the specific financial activity performed. This approach may overburden smaller entrants with disproportionate capital requirements, opaque licensing criteria, or regulatory frameworks shaped by incumbent interests, leading to unequal treatment. In contrast, activity-based licensing—where regulation is tailored to the nature and risk of the service—can enhance proportionality and support a more level playing field by aligning oversight with actual systemic impact. Such proportionate approaches are essential to foster competition and innovation while safeguarding financial stability² .