How Will Regulation Affect FinTech?

 

Once upon a time, a seed was planted. The idea behind this seed was to challenge the antiquated banking system and introduce technology that would vastly improve the process. As FinTech continues to grow, there are still issues that are preventing it from fully flourishing.

One of the major issues facing FinTech is regulation. The pre-existing regulatory framework (currently used by the big banks) can create headaches for startups, as this framework is outdated and can hinder the creative development that led to many of FinTech’s breakthroughs. However, thanks to the increasing prominence and power of the FinTech movement, government agencies are working towards changing the framework to allow FinTech to reach its full potential.

Europe and the UK, for example, have chosen to take an active approach to regulation. In the UK, the Financial Conduct Authority (FCA) has introduced a new range of considerations to include FinTech and offers an application process that is simple enough to not get in the way of the creative process involved in bringing a new FinTech breakthrough to market.

Canada, which has a highly concentrated banking system, uses the Office of the Superintendent of Financial Institutions (OSFI) to regulate its big banks, but this system is not mandated to regulate new FinTech companies. However, the Government of Canada’s Competition Bureau is currently undertaking a study to explore and advise on the regulation of the FinTech industry.

In the United States, many startups are wary of the concept of regulation and, according to PwC, 86 percent of financial services CEOs are unsure about the coming regulation and what the impact of heavy regulation would be on their business. That being said, various government agencies (including the Treasury Department, the Consumer Financial Protection Bureau and the Federal Trade Commission) are currently exploring the best process to introduce regulation.

FinTech was meant to be a game-changer, a better way of thinking that would bring in a new era of finance. That being said, expecting that this new system was going to be allowed to play by its own rules was naïve and in order to fully succeed FinTech is going to have to embrace the idea of regulation. Luckily, the major government agencies are getting ready to work with the field in order to ensure that FinTech will continue to be the better way.