Regulatory Approach

Overview

Step 1:

The implement these changes, policymakers must first seek to develop a good understanding of:

  • The fintech/ DFS market and broader financial sector (understand the different types of providers, operating models, product features, digital channels, and current and prospective customer bases and target markets).
  • Consumers’ issues, experiences and expectations [This is crucial!].
  • Current regulatory framework and its gaps.

Information for these purposes can be gathered from a variety of sources, including market research; consumer focus groups and meetings with providers, consumer and civil society representatives, and experts and other industry participants; complaints data; and supervisory activities, and engagement arrangements such as sandboxes.

  • Effective stakeholder consultation, at consumer and industry level, will be essential. Within each fintech category available or entering a country’s financial sector, a range of business models may be being utilized, with different types of providers, operating models, product features, digital channels, and current and prospective customer bases and target markets.

Step 2:

Determine whether, and if so what, regulatory measures may be needed

  • This is in part dependent on the current framework, and whether there are already essential gaps that are relevant for more traditional as well as fintech products/providers. Also consider whether it is possible to leverage existing regulation (for example through better supervision and enforcement).
  • Determine if issues are better addressed selectively/in a staged manner or through more comprehensive reforms.
  • Ongoing adjustments may also be needed (ongoing monitoring and assessment essential) given the evolving nature of fintech innovation.
  • Seek to avoid adopting separate frameworks for traditional and fintech activities of a similar nature that result in different substantive treatment. This can distort competition and encourage regulatory arbitrage.

Step 3:

Regulators should also consider when complementary, non-regulatory measures may be more appropriate as an alternative to, or until, regulatory measures are developed. For example, encouraging development of industry standards and codes of conduct may assist in establishing industry familiarity with acceptable practices. It may also assist in addressing consumer risks more quickly, particularly where regulatory capacity is limited.

Step 4:

Cross-border cooperation between authorities increasingly relevant – given ease with which foreign fintech entities may engage with consumers in other countries. While cross border cooperation is important for supervisory purposes, greater harmonization across borders, to the extent possible, can also be important in development of regulation.