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Fostering Innovation by Navigating the Evolving Regulatory Landscape Technology & Innovation - the Future of Banking & Financial Services conference.

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Presentation on theme: "Fostering Innovation by Navigating the Evolving Regulatory Landscape Technology & Innovation - the Future of Banking & Financial Services conference."— Presentation transcript:

1 Fostering Innovation by Navigating the Evolving Regulatory Landscape Technology & Innovation - the Future of Banking & Financial Services conference Grand Hyatt, Melbourne, 1st June Professor Deborah Ralston, Monash University, (Chair ASIC Digital Finance Advisory Committee)

2 Agenda The evolving regulatory landscape
How is Australia’s regulatory regime for fintech compared to the rest of the world? Examining the role of the ASIC’s Innovation Hub and proposed ‘regulatory sandbox’ Understanding how the growth of fintech will impact the ways bank operate – also on financial regulation

3 Finance is dynamic; so too must be its regulation.
(CAPRIO 2013)

4 Financial regulation post-GFC
Goals of financial regulation Stability and Confidence Efficiency and competition Consumer protection Response to GFC - in bank capital & transparency in markets Micro v. macro prudential regulation – systemic risk??  concentration –  competition Deleveraging of banks – in lending  consumer protection – informed by behavioural finance Stability Efficiency

5 Appeal of fintech Stability of financial system – New entrants = diverse ecosystem Efficiency of financial system – Lower margins + higher volumes = higher productivity Democracy of financial system – Greater access* + lower cost = social value *Financial inclusion – 2 billion of 38% world pop.n are unbanked A Haldane, Bank of England 2016

6 Regulating fintech Challenge for regulators in dealing with fintechs:
collaboration, approachability, flexibility, harmonisation, and timeliness Internationally, the approach has been active or passive depending on factors such as: Political will “Regulatory philosophy” eg. Belief in market forces v. public policy

7 Different approaches to market place lending
Source: World Economic Forum, 2015, A Paradigm Shift for Small Business Finance Lending p.27

8 International approaches
United Kingdom Dramatic contraction in bank lending post Leading regulator - FCA – competition mandate - Innovation Hub UK Govt. direct financial support for alternative lenders Mandated sharing of SME data Small Business, Enterprise and Employment Bill 2014 “New Bank Start-up Unit” – SSBs authorised on £1m capital Forthcoming Second Directive on Payments Services, known as PSD2 - will allow fintechs to act as intermediaries between banks and their customers. 

9 International approaches
China Population 1.35bn, formally banked 63%, mobile phones 86% - few branched, or ATMs Rapid growth in fintechs (around 2000 in 2014): Payments via fintech platforms increased over 400% in Yu’e Bao a fund launched by Ant (parent of Alibaba) grew > US$90 billion in just 10 months becoming 4th largest MMF in the world Source: Douglas W. Arner, Jànos Barberis, Ross P. Buckley, 2015, The Evolution of FinTech: A New Post-Crisis Paradigm?

10 Fintech regulation in China
In July 2015, Guiding Opinions on Promotion of Healthy Development of Internet Finance Policy measures to encourage FinTech innovation eg. preferential taxation and stamp duty treatment for small enterprises December 2015 draft regulation on peer-to-peer lending platforms and regulation on non-banking online payment service providers Multiple authorities involved Some rationalisation expected

11 International approaches
United States Jump Start Our Business Startups (JOBS) Act 2012 opened the way for SME loans provided by online lenders Regulatory landscape is complex and fragmented. the Federal Reserve, Consumer Financial Protection Bureau (CFPB), the Financial Industry Regulatory Authority, Securities and Exchange Commission (SEC), Office of the Comptroller of the Currency (OCC) etc., along with the 50 state regulators. Many fintechs regulated under state legislation

12 United States – an emerging national agenda
CFPB Innovation Policy February 2016, to facilitate consumer-friendly innovation and allow FinTech companies to apply for No-Action Letters to clarify regulatory uncertainty during product development. OCC White Paper March 2016 the regulator of federally chartered national banks and savings associations to provide guidance for financial institutions and companies regarding the development of products and services in the financial technology (“FinTech”) sector.

13 AUSTRALIA ASIC is the single point of contact for any company seeking a financial services license to: provide advice, investments, credit, payments service, offer credit raise capital from retail consumers ASIC’s remit is to: Promote investor and financial consumer trust and confidence; Ensure fair orderly and transparent and efficient markets; and Provide efficient and accessible registration. Innovation Hub and FinTech Taskforce to provide advice Digital Finance Advisory Committee – promote collaboration between fintechs and regulators

14 Fintech regulation in Australia
Flexibility in regulation Licensing through a third party Waivers eg, RG 167 (regulatory discretion) RG (calculators) ASIC will grant relief if there is a demonstrable net regulatory benefit Graduated payments regulation Current issues: Treasury, GST treatment of digital currency, Discussion Paper, May 2016 Regulatory guideline on Market Based Lending Consultation Paper 254 Regulating digital financial advice Regulatory Guide 000 on Providing digital financial product advice to retail clients. Productivity Commission issues paper on Data availability and use  Legislation on Crowdsourced Equity Funding went to parliament in Dec 2016.

15 Regulatory sandbox A consultation paper on the proposed Regulatory Sandbox by the end of June 2016 Supported in the Treasurer’s National Innovation and Science Agenda ASIC consultation paper due June Allow fintechs “product testing” under some form of limited licence eg “Grace period” on requirements for a responsible manager Consumer protection – restrictions on individual investments etc Types of activity – products and services no systemic risk General discussion see FCA Consultation Paper Regulatory Sandbox November 2015

16 The future for banking and fintechs
Challenges for fintechs to grow Access to data Customer acquisition Challenges for banks in adjusting to fintech environment Developing a customer rather than product focus Fostering innovation requires a more flexible innovative culture – risk! Potential for partnerships Challenge of collaboration v. competition Requires a different style of leadership KPMG reports 25% of fintech deals involve a corporate with 60 deals of over $50m in (KPMG March 2016)

17 Regulation into the future
Rapid innovation in financial markets requires a technical response to regulation RegTech postulates that disruption of finance will be accompanied by innovation in regulation of finance and ultimately the automation of regulation. * This will include: Active and productive two-way regulatory dialogue and regular feedback loops (COLLABORATION) Standardized presentation of data (regional/global) Automation of data collection Open source compliance systems (encouraging FinTech participation) Compliance criteria built into protocols (removing human error) ASIC is currently in regular discussion in matters of RegTech *Source:Dwyer, J, 2015, Regtech — Not Reg+Tech But RegTech, Celente, July.

18 Summary Benefits of fintech are significant in terms of efficiency and financial inclusion Very different international approaches to fintech regulation – harmonisation? In Australia regulation of fintech is primarily about the licensing of platforms through ASIC Increasing number of partnerships between fintechs and traditional providers RegTech is showing the way to more flexible regulation with lower compliance costs


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