Fintech developments are shaking up mandates within the existing regulatory architecture. It is not uncommon for financial sector agencies to have multiple policy objectives. When it comes to fintech, countries differ to some extent in the manner they balance the objectives of promoting the development of fintech and regulating it.
The fintech institutional framework mostly mirrors the established responsibilities for financial sector policy, supervision, and development. Ministries of finance typically lead on high-level policy coordination and formulation. Unsurprisingly, financial supervisory authorities have an active, multifaceted role. Law enforcement agencies engage on fintech-related financial crimes, including money laundering and terrorist financing. Sometimes, other authorities such as those dealing with telecommunications, IT and industrial development, are involved in regulating fintech too.
Some regulators prioritize traditional prudential and conduct objectives. Others give more weight to innovation, inclusion, competition and development. This can be a matter of statute or individual agencies can have the leeway to manage their priorities. Either way, this can affect internal structures such as the separation of reporting lines and the allocation of staff resources. Most supervisors have set up a core fintech group and an expert network. The core group is usually full time and is supported by a network of experts across the agency which is available to help as needed on specific issues.
Core groups vary greatly in size depending on their functions. They can: (a) act as point of contact for fintech firms; (b) run a sandbox; (c) coordinate domestically with other authorities; (d) coordinate internationally; (e) monitor fintech developments; (f) provide internal training; (g) assess fintech applications to supervision processes; and (h) in a few cases, supervise fintech firms. To staff their core groups, some authorities have relied more on newly hired technical experts while others depended on internal talent.
Domestic and international coordination takes various forms. Coordination amongst domestic agencies typically makes use of existing senior level structures; when fintech issues arise, they are referred to a sub-committee or result in the creation of a taskforce to develop proposals. International coordination arrangements range from bilateral agreements and initiatives (e.g., fintech Memoranda of Understanding) to multilateral ones coordinated by the standard-setting bodies. In addition, a new multilateral network, the Global Financial Innovation Network, has recently been set up to exchange learnings, develop a common sandbox and help firms navigate between different jurisdictions as they aim for scale internationally. Fintech presents a challenge to existing institutional arrangements in three ways: clear mandates, effective coordination and flexibility.
Regulators must rise to the challenge if fintech is to thrive without causing financial instability. To that end, agencies and internal structures they create should have clear mandates. Since fintech tends to cross regulatory boundaries, effective coordination is critical, both domestically and internationally. And, looking to the future, regulators need to be prepared to change their institutional arrangements quickly given the speed and ubiquity of fintech development.
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