global regulators fintech firms

Historically, banking has been one of the business sectors most resistant to disruption by technology. However, in recent years, financial technology (fintech) startups have been massively disrupting the way financial services are being delivered to customers. Through innovation and creativity, fintech is making inroads with incumbent financial institutions and changing banks and helping to make them more efficient and improving the customer experience.

Fintech has not only challenged the conventional approach to banking, but it is also revolutionizing how regulations are managed with the emerging popularity of regulatory technology (RegTech). Now that fintech companies are having a greater influence over cross-border financial transactions, regulators are also starting to look beyond their borders to build strong partnerships with their counterparts in other jurisdictions.

UK and Australia

The agreement between the Financial Conduct Authority (FCA), a UK regulator, and the Australian Securities & Investments Commission (ASIC) was the first of its kind in the world when it was signed in March 2016. Australia and the UK hailed the cooperation agreement as breaking down barriers for fintech by making it easier to pursue new opportunities in both countries.

The UK is the first country to open a regulatory sandbox that would allow fintech firms to test their products and services in a safe environment where they would not be subject to penalties or fines due to lack of compliance. Australia has also proposed the creation of a regulatory sandbox, but it is still in the preliminary stages.

As part of the agreement, the UK and Australia – each with their own Innovation Hubs to help fintech startups through the authorization process and to provide support in complying with regulations – will refer to each other fintech firms that wish to enter the other country’s market. Both the FCA and ASIC are committed to assisting companies before, during, and after receiving authorization to ensure optimal compliance and reduce time to market.

Australia and Singapore

In April 2016, news headlines announced that the Monetary Authority of Singapore (MAS) and ASIC had begun discussions about an agreement similar to that which was reached between the FCA and ASIC in the previous month.

Although the MAS was the first regulator in June 2015 to publicly propose the idea of a sandbox for testing fintech products and services, the Singaporean concept is quite different from that of its British and Australian counterparts. Whereas the FCA and ASIC sandboxes are owned and managed by the regulators themselves, the sandbox proposed by MAS would have very little involvement from regulators. Instead, financial institutions themselves would be expected to create and maintain their own sandboxes.

While it’s still unclear whether or not Singapore will adapt its sandbox to be more in line with that of Australia, both parties are keenly interested in reaching an agreement that will facilitate expansion of home-grown fintech into the other country.

UK and Singapore

In its efforts to build up its fintech industry, Singapore’s MAS launched its Financial Sector Technology & Innovation program, a $165-million, five-year initiative, in June 2015. Some of the funds allocated have been used to set up a dedicated office designed to help startups get established in the country.

As part of its continued drive to gain a competitive advantage in Asian fintech, the MAS announced in May 2016 that it had signed a Regulatory Cooperation Agreement with the FCA, marking the launch of the UK’s first-ever “Fintech Bridge”. The signing of this agreement emphasized the Singaporean government’s commitment to building its Smart Financial Centre that will provide global leadership in fintech innovation.

“The Fintech Bridge that is forged with the UK today is a significant step forward in our fintech journey,” said Jacqueline Loh, Deputy Managing Director of the MAS.  It will support fintech innovators who wish to use Singapore as a base for collaboration and as a gateway to other markets in Asia.”

It seems only sensible that just as fintech firms, banks, and regulators are working more closely together domestically, financial regulators seeking the best interests of their home countries are reaching out to collaborate with their international counterparts. Through greater collaboration, there is much more to be gained by all parties involved than when they work independently.

For the time being, other jurisdictions like Hong Kong, the U.S., and Canada, have not been actively seeking regulatory partnerships to support their home-grown fintech sectors, despite each having a significant and growing industry.  In order to encourage further fintech growth, regulators in these jurisdictions should take a serious look at the benefits of entering cooperative agreements with regulators from other regions.

“With the global economy increasingly interconnected, financial regulators are now also looking across borders and reaching out to collaborate,” said Jon Jones, President at Trulioo. “As a result, everyone stands to gain from these stronger partnerships through the availability of more affordable financial products and services and better protection for consumers.”

Which countries do you think should sign the next cooperation agreement?