Fintech

Best fintech accelerator? Your regulator

Best fintech accelerator? Your regulator. Main image: ESB Professional, Shutterstock.com
Written by Oliver Bussmann

The regulator is taking on a business development role. If it wants to be effective, it should approach it the right way, says Oliver Bussmann.

My good friend Chris Skinner has been pointing out the different ways regulators around the world are supporting the fintech ecosystem. And rightly so. From setting up dedicated fintech offices to providing sandboxed environments to safely try new tech, regulators in the UK, Singapore, Hong Kong and elsewhere are actively focused on financial services innovation.

In other words, along with their remit as policy makers, rule writers and enforcers, these regulators are now also taking on a business development role. This is a significant development, and it is to be welcomed. But if regulators want to be really effective, they need to approach this new role in the right way.

Here’s why I think so …

Financial services is one of the most highly regulated industries in the world. Even in the most stable of times, the regulator plays a key role in how banks run their businesses and how a given financial centre operates.

In our current environment of highly disruptive new tech and massive innovation, with high numbers of new entrants from outside the industry, and banks rethinking business models, regulatory decisions will have even more impact.

If the regulator isn’t part of the innovation ecosystem, it can (among other things) greatly reduce the speed at which innovative ideas become workable products. And let’s make no mistake: when it comes to business development, time-to-market is essential.

Your regulator, the fintech accelerator

As I have written elsewhere, I believe strongly that innovation can be orchestrated, and that open collaboration – even among competitors – is unavoidable in today’s complex world. I think regulators are in a unique position to take on the role of innovation orchestrators. In particular, I believe they:

  • need to bring the whole ecosystem together – high-tech firms, consulting firms, startups, incumbent banks and other stakeholders
  • should foster collaboration, if not mandate it
  • if possible, provide sandboxed, real-time production environments to try out new capabilities in ways that are safe for the companies and the financial system.

Sandboxed environments, such as those of the FCA and MAS, are I think particularly powerful tools. They are also prudent measures in our age of highly disruptive, often cloud-based, fintech, and considering such thorny issues as data location, data privacy, operational resiliency and so on.

A virtuous circle

Building and supporting this kind of an innovation ecosystem can result in the following virtuous circle of advantages:

  • It means all parties go through the learning curve together. This helps avoid redundant work and quickly spreads adoption of the best new ideas.
  • It replaces the traditional, formal regulatory discussions with a more informal, open and proactive regulatory dialog.
  • Working together, the ecosystem will not only quickly understand the new possibilities, it will also quickly uncover the risks and limitations, as well as ways to overcome these.
  • With the regulator as part of the process, these learnings can be more quickly reflected in better policy and laws.
  • Better policy and laws in turn will reduce regulatory uncertainty, hence attract business.
  • As business flow moves towards a particular jurisdiction, that financial centre is naturally strengthened.

Compete together

One last thought on competition. There is no doubt we are seeing a fierce battle between financial centres being played out in the tech and innovation space. When regulators become business developers, they naturally join the fray, but it’s in the interest of all regulators to strengthen the global financial system as a whole as well.

The good news is that we’re also seeing cooperation between regulators, as with recent bilateral agreements between the UK and Singapore authorities, or the UK and Australian ones. This is the right way to go. Just as in the tech environment, in the regulatory environment we need to build the standards, the rules, and the rest of the foundation together, and across jurisdictions.

Fintechs in jurisdictions with supportive regulators should seek them out and become part of the dialogue. Those regulators still on the sidelines, or that take an overly restrictive stance on innovation, risk getting in the way of progress and potentially doing harm to the financial centres they’re tasked with caring for.

READ NEXT: Meet the greatest revolutionary of them all … the regulator

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: ESB Professional, Shutterstock.com

About the author

Oliver Bussmann

Oliver Bussmann has a reputation as a technology thought leader and driver of large-scale transformation at global organisations in the financial services and hi-tech industries. As group chief information officer of UBS, he successfully led a major IT transformation effort, instituted a new IT innovation framework, and established UBS as a pioneer in the development of blockchain for use in financial services. Prior to this, Oliver was global chief information officer at SAP for four years, and was CIO for North America & Mexico at Allianz. Previous roles include executive positions at Deutsche Bank and IBM.

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