"There are varied reasons why FinTech flourishes in some countries and stalls in others. In this piece, I explore a common thread found in jurisdictions where FinTech has gained traction: the level of support governments extend toward the budding industry. Where government regulators are accommodating, forward-looking, collaborative and proactive, the industry grows, user adoption expands and investment increases."
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The macro environment in which FinTech operates has become critical to continuing innovation in the sector. Put bluntly, governments can help or hinder FinTech.
In the main, governments – through their national and regional regulators – have encouraged innovation. Sandboxes, for example, are well established as a facilitator for technology and there is even competition between the national sandboxes to attract companies.
Luxembourg has long been a cheerleader for FinTech, adopting a proactive approach to blockchain, for instance, in recognition that blockchain/DLT technologies potentially reduce costs and create more robust securities processes.
Yet, despite the proven benefits of FinTech, regulators worldwide are starting to show concern over the perceived risks, deploying a range of transparency and disclosure rules and writing detailed conduct of business rules to respond to each new wave of FinTech innovation.
Artificial Intelligence (AI) has attracted a focus all of its own. The EU Commission has established a High-Level Expert Group on AI, with the aim of developing new policy on ethical, legal and societal issues related to AI. Similarly, the UK has created a Centre for Data Ethics and Innovation to identify potential gaps in governance and regulation that could impede the ethical and innovative use of data and AI.
In Luxembourg, a champion of innovation in the funds sector, the CSSF in December 2018 published a white paper on artificial intelligence, highlighting potential risks and advocating “an adequate control framework”. Luxembourg is also tackling robo-advice head on, arguing that many robo-advisers have “limited capabilities”.
The stance governments take towards Fintech is critical to future growth. Caution is a fundamental facet of the regulator, of course. But governments and regulators worldwide must not relinquish their cheerleading role for FinTech, and should continue to recognise that they have a beneficial role to play in lowering costs and levelling the playing field for ordinary investors.
Innovation is at the heart of our industry. Let's allow it to flourish!
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