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| 3 minutes read

Fintech: what's really in a name?

Well, as reported by Financial News's Ryan Weeks in the Fintech Files of 20 August, quite a bit.

Why? If regulatory bodies around the world define fintech products and services in different ways, there is a risk of a "fragmented regulatory landscape", according to the World Federation of Exchanges (WFE) in its response to the Financial Stability Board's consultation on stablecoins (cryptocurrencies backed by low-risk assets).

The implication here is that, without a commonly applied regulatory classification - or even a commonly accepted understanding - of fintech products and services, some cryptocurrencies, digital assets and services may be over- or under-regulated in different jurisdictions. This could, of course, affect the level of protection given to retail customers or even have a negative systemic impact. The disparity may present more of a risk in cross-border or multi-jurisdictional fintech supplies and services. And, through ex ante regulation, an uncoordinated approach by regulators could stifle the development of innovative fintech products and services that they seek to encourage: sometimes called the "uncertainty paradox".

The CEO of the WFE, Nandini Sukumar, is quoted as saying that there "is really a very great need, in regulatory terms and to aid the future growth of crypto products, to have a common taxonomy for stablecoins and cryptoassets".

Ryan Weeks also mentions the UK Financial Conduct Authority's insistence on the term "cryptoassets"  to refer to what other regulators and industry bodies call "cryptocurrencies" or "digital assets".  Here, I am less persuaded by the risk of over- or under-regulation - as long as there is a more granular, local, underlying definition and understanding of what the FCA means by "cryptoassets".  In other words, if fintech products and services are characterised and regulated according to their substance, i.e., their underlying features and effects, the problem of nomenclature may be more illusory than real. Having said that, my distant experience as a government lawyer and legislative drafter in the days of the UK's Financial Services Act 1986 and the subordinate legislation made under it reminds me that, to define accurately and comprehensively fast-developing financial products, services or instruments in detailed regulation, can be quite challenging. Mind you, we have all come a long way since the early days of trying to capture in regulatory legislation financial activity that had not previously been regulated.

Ultimately, it seems to me that the real risk here lies in the "fragmented regulatory landscape" referred to by the WFE.  

But help is at hand. As part of a survey in collaboration with the World Economic Forum (WEF) and the World Bank Group (WBG), the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School has developed a taxonomy for the fintech sector - interestingly, in the context of the effects of Covid-19 on global fintech markets. Ryan Weeks reports that it contains 13 different verticals (described by the CCAF to include digital lending, digital capital raising, digital payments, wealthtech, insurtech and cryptoasset and consensus services) as well as 103 sub-verticals. The four areas on which the study focuses are:

  • trends in fintech market performance
  • firm specific responses to Covid-19
  • fintech's regulatory needs and policy asks
  • operational changes and implications

The outcome of the survey will help the global fintech industry to understand national and regional market trends, identify the Covid-19-related challenges and opportunities facing it, and reflect the views and concerns of regulators and policy-makers.  As the CCAF says: "In turn, this research will also inform regulators, central bankers and policymakers to take swift, appropriate and evidence-based actions." For the findings of this substantial survey and study, we'll have to wait until Q3 2020 for the Global Covid-19 FinTech Market Rapid Assessment Report, to be published jointly by the WEF, WBG and CCAF.

Given the Report's focus areas, its likely findings and its potential impact on our understanding of the fintech markets and the quality and - one hopes - co-ordination of future global fintech regulation,  it should definitely be worth the wait. 

"The [fintech] definition issue has always been problematic for as far back as we can remember - back in the crowdfunding days" Bryan Zhang, Co-Founder and Executive Director, Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School


commercial, financial services, finance, insurance, corporate, private equity, technology, investment management, fintech

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