Regulatory pace cannot keep up with the FinTech innovation. How do we solve that?
Digital advice clients of all kinds will soar up to 844 % and more than 17 million by 2021 according to a recent study by Aite Group. No wonder digital providers are quickly adapting their services. After first robos came to life, it soon became clear to them that robo advice would not suffice, so they have already begun offering human advisors to clients.
But technology brings with it huge benefits on one hand and various risks on the other. With the popularization of blockchain that is driving FinTech startups, financial services industry started to evolve at a pace never seen before. That poses many regulatory questions for startups like MoneyRebel. That is why our CEO Mitja Vezovišek decided to attend the annual conference in Brussels to get answers first hand. We present his extensive report and various thoughts below.
What is our role as supervisors in innovation?
That was the first question regulators knew they must pose to themselves. Regarding EU, we heard that the commission will present an action plan on FinTech next week. Let us hope it will follow the right path to foster innovation. What is fairly obvious is that we cannot expect any EU directives regarding ICOs very soon. As such, we will have to assume we are handling it the right way and in a way that will protect our contributions and other stakeholders on this journey to successfully perform the ICO and develop the MR Platform.
“Money flows, no matter the borders.”
That is one of the statements even regulators are aware of. Not all are aware that if they create very strict rules they will kill innovation. Regulators should instead create a safety net for customers to prevent frauds and misconceptions. Interestingly, we also heard that there is a growing need to tackle financial literacy! Naturally, how can you expect one to understand the benefits and risks that come with cryptocurrencies, if they are not even acquainted with the concept of a mutual fund? Sadly, many regulators are illiterate themselves, so they see only the risks, and not the real benefits of cryptocurrencies.
Everyone agrees on the benefits of blockchain technologies, but there are also great benefits in crowdfunding via ICOs, such as the opportunity to support startups with small amounts and low costs, which was not the case before. And since everyone can get out 24 hours per day, 7 days per week, it ensures great flexibility for every supporter. If you add financial literacy and guidance on the go, I really cannot see that big of a risk for individuals at all. They only have to avoid scams. To do that, there will be no better tool than the MoneyRebel platform! In a couple of months, all this will be available to each of our supporters, so stay tuned!
“Because of technology, financial planning is becoming available to everyone.”
That is exactly what the MoneyRebel platform will provide to our users. On top of that, we will combine the efforts of traditional (fiat) advisors with those of new (crypto) advisors. These crypto skilled individuals are already helping dozens of their followers. MoneyRebel will offer them tools to monetize their help and scale their newborn businesses. On the other hand, their followers will be provided with a safe and user friendly environment with guidance to benefit from financial planning tools that are unavailable to them at this moment.
Crypto is a trend we can no longer stop. In Netherlands, for example, 1 mio people have already bought cryptocurrency. These are mainly younger generations that see traditional advisors and supervisors as prehistoric. There are no warnings that could help, we must step into the game and guide them on the go.
Europe itself has not been a forerunner in the FinTech so far. But it seems to be turning around. We should ask ourselves, what is real and what is the hype in digital innovation?
Olli Rehn: “Europe has the potential to become a leader in the digital transformation of the financial industry. This calls for strong innovation and flourishing of the FinTech sector.”
Regulatory pace cannot keep up with innovation. How do we solve that? With cooperation across the borders, regulatory sandboxes and by partnering up with FinTech startups. We have two great cases in practice, with Malta and Gibraltar leading the way.
Malta decided to lead the distributed ledger regulation and promote Malta as a hub for innovative technologies. What is Slovenia waiting for?
He continued: “The question is not whether we should ban or not. The question is what we would like to do: lead or follow? Certification will be on a voluntary basis! It must be a certification that will benefit companies. It has to pay off for them to be certified.”
Gibraltar has issued rules for certification that are based on values. You have to be transparent, honest etc. and nothing more. Then they let startups take off and judge them individually. That is the new way, a value based regulation and not rules based, since the landscape changes very fast, too fast for regulators.
On the other hand, ESMA issued two warnings, one to customers and one to ICOs, stating that they must follow regulation if there are security tokens. However, that is just to ensure that they can say “we told you so”, which is the old way to address innovation.
Interestingly, because of cyber-attacks, ECB is not too eager to give up on cash; it is always a safe fallback solution! On the other hand, we heard that KYC and AML processes are not working out. Firstly, they are not effective (less than 1% of non-legit transactions have been caught within). Secondly, they are costly and require a lot of work and energy from companies.
Hartwig Gerhartinger from Paysafe stated, “If we had started by looking at which standards we should apply, we would still be looking for a solution instead of doing business. That means that standards should come from the industry to the regulators, and not vice versa.”
So, what is the key takeaway?
Regulators are observing FinTech startups and they admit that they are still learning. Some are taking the lead, like Malta, Gibraltar and Swiss, so I hope Slovenia too will get going and seize the opportunity to really become a crypto state as well.
As startups, we are already doing our job, government initiatives like Blockchain Think Tank are here, but we must act now! Slovenia has the chance to build a Blockchain ecosystem and secure well-paid jobs not only through startups, but also via supporting entities like lawyers, accountants, marketers etc. Otherwise, startups like MoneyRebel will just choose the environment where rules are known upfront, since we do not want to take regulatory risks.
Mitja Vezovišek, MoneyRebel CEO