Commonwealth Nations beating America on FinTech Regulation

Commonwealth Nations beating America on FinTech Regulation

There’s a global competition between governments for who can best accommodate emerging financial technologies, and the United States is losing.

Just last week, Australia and the United Kingdom announced that they will strengthen their “FinTech Bridge,” a collaborative program between the two nations that will facilitate the entry of FinTech start-ups into each jurisdiction’s regulatory sandbox. The agreement will also include an initiative to reduce barriers to licensing for firms that are already licensed in the other country.

The agreement is fitting, given that the two nations are some of the world’s leaders for accommodating emerging financial technology. The UK is perhaps the best known, with the Financial Conduct Authority (FCA) establishing a regulatory sandbox for FinTech firms back in 2016. The FCA describes the effort as such:

The sandbox aims to promote more effective competition in the interests of consumers by allowing firms to test innovative products, services and business models in a live market environment, while ensuring that appropriate safeguards are in place.

Sandboxes, broadly, are testing grounds for new business models. It is a concept adopted from the world of software development, where a firm can test a technological proof of concept to a limited market prior to a full-scale public release. They typically require firms to file applications to the responsible financial regulator outlining how they are innovative, their benefits to consumers, their need for testing, and resolution plans if something was to go awry. Upon acceptance, firms in the sandbox are given around 1 year to test their innovative business models or products to a defined number of customers without having to become licensed financial service providers. Firms are also assigned a regulatory officer who supports the design and implementation of the test, in order to assist firms with understanding their future regulatory compliance. The regulator can issue waivers, no-enforcement action letters, or use existing statutory exemptions to facilitate the sandbox.

The current effort in the UK has largely been hailed as a success.


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Source: Commonwealth Nations Beating America on FinTech Regulation | Competitive Enterprise Institute