Luge Gives Recommendations to Regulators in Support of Fintech Companies

As a member of the fintech community, we believe it’s important to be engaged on the issues that impact the players in our ecosystem, which includes startups, established businesses, investors, customers, partners and regulators.

In August of 2018, a handful of financial services regulators from around the world published a document requesting feedback on a proposed new body called the Global Financial Innovation Network (GFIN). The aim is to promote global collaboration in policy making that drives innovation in financial services.

Last week, we submitted our response. Below are some of the key points we addressed. You can read our full submission here (warning: it’s a 7-page text document).

Expand on the mission statement

We felt that the proposed mission statement for the GFIN was missing three key ingredients:

  1. Sharing data amongst regulators on the effectiveness of regional compliance policies
  2. Strive to help businesses attain greater (not less) efficiency in their goal to comply with local regulations
  3. Establish a set of common best practices amongst regulators around the world so that companies can leverage a single platform for a multi-jurisdictional business

Expand on the goals of the GFIN

Referencing the three stated goals that GFIN proposed, Luge suggested that the list be expanded to include a framework for fintech companies to engage with regulators in a safe and productive manner. We proposed a framework that allowed companies to i) gain access to resources; ii) obtain clarity on how to benefit from the collaboration efforts; iii) participate in trials and the sandbox environment; iv) obtain feedback on their efforts and understand how to improve; and v) ask general questions.

We further suggested that the GFIN should also establish a method to continuously inform and influence policy-makers around the world as technology within financial services evolve. We have seen that technology companies face dampened innovation because regulations have not yet contemplated how technology enhancements impact areas of risk, fraud, anti-money laundering, counter-terrorist financing and consumer protection. The creation of a technology division within the GFIN structure would be critical for the rapid improvement of regulation policy.

Highlighting the challenges

In our response, we highlighted that the biggest regulatory challenge when it comes to innovation is the separate licensing requirements to operate in multiple jurisdictions. While a global standard on regulation policy is difficult to achieve, striving towards common best practices and a more centralized form of reporting would reduce the financial and operational burden to comply with regulations that have fully reasonable merits.

At Luge, we support appropriate regulation on the financial system in order to keep consumers and businesses safe from fraudsters, money launderers, terrorist financiers and other bad actors. However, reducing the operational, technical and financial burden of adhering to different schemes, each of which have similar objectives, would be a significant effort to drive innovation. Companies would be able to build a single platform to properly comply with regulations of a similar nature around the world in an efficient manner with limited capital requirements.

Conclusion

Overall, we expressed support for the establishment of the GFIN, and the broad objectives it hopes to achieve. We are particularly interested in the creation of policy standards that enable fintech companies to expand their business geographically in a more efficient and cost-effective manner, while also adhering to a high standard of safety for consumers.

We cautioned that the establishment of this organization not create additional operational burden for stakeholders in the ecosystem, but rather that the GFIN be regarded as a resource to help accelerate growth.

Luge supports the effort to implement cross-border trials to test new ideas, new products and new business models in a geographically diverse setting. We believe, however, that these trials should be implemented so that participating companies can benefit from the structure without having to deploy significant resources to adhere to each local regulatory regime as long as a single high standard of operation is already established.

More information on GFIN: https://bit.ly/2Maebm8

Luge’s response to the GFIN questions: https://adobe.ly/2ys54p2

-Karim Gillani, General Partner, Luge Capital