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Regulators recognize the benefits of fintech but fail to meet its specific needs
27 September 2022The vigilance of regulators in the challenges of financial inclusion due to the pandemic is highlighted by the latest report, The Global Covid-19 FinTech Regulatory Rapid Assessment Study from World Bank and the Cambridge Center for Alternative Finance. While this is certainly a positive turn, the findings of the study show that for the most part regulators are unable to recognize the specifics of fintech market. As a result, “regulators are responding to the challenges of Covid-19 and increasing digitalization of financial services by taking both sector-wide and, to a lesser extent, fintech specific regulatory measures”.
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According to the study, these financial sector-wide measures which may have implications for fintech included actions in relation to anti-money laundering (AML) and digital identity (49{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} of respondents), economic relief schemes (42{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}), business continuity plans (39{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}), measures to enhance cybersecurity (29{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}) and measures focusing on promoting employment and talent (17{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}).
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While financial service regulators are reported to have kept a high priority for fintech during this challenging time, only 37{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} of those surveyed have taken at least one regulatory measure specifically targeting fintech sectors or activities. Excluding the election of some regulators to introduce measures that are applicable to the wider financial sector more generally, other reasons concern “fintech market size, which may be considered too small or nascent to justify targeted regulatory measures or the fact that in some countries there is no specific legislation that would grant regulators the direct mandate”. Deficiencies that Channel VAS has repeatedly identified, proposing solutions that would maximize the benefits that fintech services can offer. For example, very recently our founder and CEO Bassim Haidar suggested that regulators should reconsider the way in which user data are guarded, as a measure that would give a pig push for greater financial inclusion.
The study notes that the most salient measures, especially in emerging market and developing economies, were directed at digital payments and remittances (65{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} of respondents in emerging market and developing economies), such as waiving transaction fees, partially or in whole, and raising transaction thresholds. Other measures included facilitating digital capital raising and creating digital banking frameworks.
Even though the study shows the gap in the regulation of fintech services, authorities appear to be satisfied with their response to the challenges of Covid-19. Particularly, 80{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} of regulators felt that they have been resilient and adaptable in their response while over half
(54{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}) regarded themselves as being ‘well prepared’. In addition, 80{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} considered themselves resilient and able to adapt and 59{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} felt that they had adequate resources at their disposal.
According to the study, financial regulators face considerable internal challenges due to Covid-19. While not all regulators may have the remit or regulatory framework to support the development of fintech-specific measures, the study indicates a number of key challenges, such as performing core functions while working remotely, coordination with other domestic agencies, access to accurate and timely data, increased demand on resources etc. In addition, regulators consider that their work on fintech would benefit most from skills development (80{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}) and technical support (67{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}), with more demand from regulators in emerging market and developing economies.
Certainly, the pandemic era is a very instructive period for regulators. But despite the progress they have already made, it is equally important that they understand the specific needs of the fintech market and respond even more effectively to its challenges.
