Regulators in the world of fintech are often stigmatized as governing bodies that stifle progress and innovation in the industry. With their role centered around managing risk in the financial system, this often means removing efforts that could destabilize the environment or create unfair competition—a necessary evil.
However, often overlooked is the important role regulators play in fostering growth across the industry, whether through promoting collaborations, or spurring the development of new products and roles that a fintech can play. Sometimes a regulation is necessary to identify a new problem to solve that can lead to a more significant innovation. This was a key argument in Co-founder and Head of Client Delivery of RegTech Associates, Dr. Sian Lewin’s, recent address to the financial community. In this address, she spoke of two key ways that regulators improve the community.
Firstly, she argued that regulators “drive cross-border connectivity between regulators and fintechs.” A great example of this that was highlighted was the U.K.’s bilateral financial bridges which enables bespoke agreements that make possible partnerships between two governments. Under this arrangement, regulatory organizations build bridges for collaboration between different global financial ecosystems where information, resources, and innovation can be shared. These bridges have been formed to great success ever since the first ever agreement in 2016 between the U.K. and Singapore.
Secondly, Dr. Lewin further added that regulatory bodies have the ability to promote partnerships between fintechs and incumbent organizations. Here, open banking is made possible under the second Payment Services Directive (PSD2), “the single biggest piece of regulation that has not only helped to shape the fintech ecosystem as we know it today, but one that has almost forced partnerships on incumbent players.”
In these instances, the existence of regulation inspires innovation and collaboration that has greatly benefited the fintech industry. Great creativity can come from limitation in the design world, and that certainly transpires in the world of fintech when regulatory bodies intervene for the better.