FCA, IOSCO and FINRA to regulate FinTech and Blockchain
In the aftermath of the financial crisis 2007–09, financial regulators across the world implemented tighter controls on the majority of sectors within the financial services industry. One of the reasons for their activism may have been the lot criticism regulators have received for often being ineffective when it mattered most.
In any case, the onus lying on regulatory bodies to ensure fairness within financial markets is now greater than ever. And one of the lessons learnt over the last eight years or so, regulators are today more alert to the far-reaching implications of the FinTech industry.
The booming industry
Investment in the booming sector tripled to over $12bn last year and is expected to hit $46bn by 2020. Given such explosive growth, the immediate challenge for regulators is how to keep up with the industry’s development and ensure consumer protection is maintained, particularly when many FinTech sectors, such as peer-to-peer lending, operate outside of the traditional regulatory space for financial services. Indeed, this is the view taken by David Wright, secretary general of the International Organization of Securities Commissions (IOSCO), the global standards setter for the securities sector which brings together the world’s securities regulators.
Wright warned in October that regulators across the world need to quickly become au fait with the FinTech revolution, otherwise it will be too difficult to implement reform on areas such as clearing, settlement and collateral management further down the road, once the floodgates have opened. While praising FinTech’s ability to provide credit to small companies, Wright has urged the need to address the possible risks, adding that the IOSCO needs “to get up to speed very, very quickly”.
The UK’s Financial Conduct Authority (FCA), a non-governmental regulatory body whose mission is to ensure the successful operation of financial markets, has been one of the most pro-active authorities in responding to FinTech growth. Christopher Woolard, the FCA’s director of strategy and competition, recently outlined three major challenges that regulatory bodies need to consider when facing FinTech:
- What do we think about the emergence of ‘robo-advice’?
- What are the benefits and risks of blockchain?
- Can technology help solve some of the problems we face around identifying customers and combatting financial crime in a more frictionless way?
It has also been just over one year since the FCA launched Project Innovate, an initiative designed to effectively engage with FinTech innovators, and as part of the project, the FCA has also created Innovation Hub which more specifically provides support for innovation in financial services. A team of FCA staff guides FinTech start-ups through the process of regulatory authorisation and then provides support for one year after receiving approval. The FCA will also explore how regulation can continue to be adapted to encourage growth without sacrificing consumer protection.
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