As FinTech evolves, can financial services innovation be compliant?

The emergence and impact of regulatory sandboxes — in the UK and across Asia-Pacific

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A significant increase in the number of FinTech firms, and corresponding venture capital and corporate investment in the sector, is sure to have a profound impact on the evolution of the financial services industry.

According to the 2017 EY FinTech Adoption Index, FinTech has already been embraced by the mainstream. Across the 20 markets in the EY study, 33% of digitally active consumers are making use of FinTech products and services – with rates varying significantly across different markets and regulatory regimes.

The rise of FinTech requires regulators to understand how to best apply regulatory principles to new settings created by new technologies and business models.

Unless clear guidelines and precedents are provided, or a means for running controlled experiments can be allowed, new applications enabled by FinTech can create regulatory ambiguity.

Regulatory clarity is of critical importance to FinTech innovators. Regulations can impact anything from how money can be raised to how advice can be given or how a service may be delivered. Unless innovators understand the regulatory context, it is almost impossible to bring compliant services to market.

Recognising the difficulty of innovating without certainty, many regulators in the Asia-Pacific (APAC) region are starting to follow the global trend of developing a “regulatory sandbox”. In a regulatory sandbox, traditional and non-traditional financial institutions are able to test new technologies and business models in a live but controlled environment, giving regulators time to adapt legislation as needed.

This collaborative approach has the potential to be a highly effective way to take FinTech to market safely and efficiently. However, not all sandboxes are created equal; different markets have demonstrated varying levels of commitment in line with market-specific objectives and policy regimes. Innovators interested in global mobility must have a clear understanding of not just their local geography but also how other markets seek to regulate FinTech offerings.

This report examines regulatory considerations pertaining to FinTech innovation, as well as the different approaches being taken by regulators across the APAC region.

Our primary focus is regulatory sandboxes, starting with how these collaborative endeavors work and the experiences of five companies in the first cohort innovating inside the pioneering environment offered by the UK’s Financial Conduct Authority (FCA) sandbox. This report also tracks the progress of APAC’s regulatory sandboxes, which since September 2016 have been progressively established in Hong Kong, Thailand, Malaysia, Singapore, Australia, and Indonesia.

We hope that this report will help FinTech innovators and their partners to understand market-by-market differences and the likely evolution of APAC’s regulatory sandbox environment – as well as best way to navigate these changes.

EY - As FinTech evolves, can financial services innovation be compliant? 

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