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Fintech Regulation Trends in the US and UK

Regulators and fintech companies are in a consistent balancing act with each other.  While fintech companies do not fundamentally mean to push back against lawmakers, many innovative companies bring tools, services, and ideas to the industry (and world) that disrupt the status quo. With that said, here are three regulation trends affecting the fintech sector.

Mobile Payments

Although it is no surprise to the Bay Area, according to the Harvard Law School Forum on Corporate Governance and Financial Regulation,“Fintech companies have begun to challenge banks and other types of regulated financial institutions across a broad range of products and services. In the mobile payments space, service providers including PayPal, Ripple, Square, Venmo and Apple Pay are changing the ways in which retail and business customers pay for purchases.”

Recently, the Financial Times examined a global survey published by professional services firm EY that boasts UK regulators as the most “fintech friendly”.  The article quotes EY’s global leader for fintech, Imran Gulamhuseinwala: “There are other regulators around the world that have more funds and resources, and other regulators with more powers. But it was really only the UK financial regulator that has built into its governance a mandate to promote innovation and competition, as well as the traditional mandates of financial stability and consumer protection.”

The Sandbox

The Financial Conduct Authority (FCA) in the UK launched a new initiative in May of this year named “Project Innovate” as a means to help guide the challenges facing regulators and fintech companies in the UK. The project creates a “sandbox” where fintech companies can test, trial, and examine products in a “safe space” according to an FCA press release. The aim of this project is to allow more support and flexibility for developing fintech companies without threat of persecution. Should questionable practices or gray areas in regulation cause uncertainty in legal contexts, fines and citations can be avoided.

Many suspect that growth in the fintech sector will continue in the UK, while there is some uncertainty with the US market. According to American Banker some of the differences in the US and UK market have to do with the fact that “most financial regulation was written long before the technological advances driving FinTech were created.” The US is also coming out with new legislation and policy with the continually changing financial climate.

White Papers

In August of this year, the Office of the Comptroller of the Currency (OCC) issued its white paper on the increasing growth in fintech sector.  According to Reed Smith, “the OCC’s FintTech white paper is certainly good news for the banking and technology industries on many levels.” And continues, “the OCC appears committed to facilitating discussions between innovators and regulators early-on in the development process. Such innovators will be in a better position to evaluate…before too many resources are devoted to a project that may carry fatal regulatory flaws.”

Potentially this program can help alleviate some of the gray area associated with the unregulated fintech industry. Similarly to the UK program, which allows developing companies room for developing in a regulated environment.

In last week’s blog, we brought up the recent non-binding legislation passed in July in the US Congress, which “calls on the US government to craft a national policy for technology, with specific mentions for digital currencies and blockchain.” With all the next regulatory focus on both the side of lawmakers and fintech companies, expect to see more developments in policy and innovation on both sides of the coin.

Should you have any questions about fintech and regulation or would like more information, please reach out.

 

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