The UK Financial Conduct Authority (FCA) announced the launch of the Global Financial Innovation Network (GFIN), a new alliance to encourage the growth of fintech globally.
The GFIN is part of the FCA’s plans to formally create a “global sandbox”, an idea it first discussed in February. A sandbox allows companies to test new, innovative products that are not protected by current regulation or supervised by regulators, reducing the time and cost of getting products to market.
The new ‘global fintech sandbox’ will involve a collaborative effort with watchdogs from around the world including the US Consumer Financial Protection Bureau, the Monetary Authority of Singapore and the Hong Kong Monetary Authority. It aims to help regulators stay ahead of the new wave of emerging technologies.
Over the past few years, watchdogs have seen the rapid rise of data analytics, the advancement of technologies such as AI and the creation of new securities such as ICOs. Under GFIN, a fintech will be able to carry out tests in different countries at the same time to solve common cross-border problems such as data protection, KYC and anti-money laundering.
The UK has established a reputation for being at the forefront of the fintech revolution and received more investment in its fintech sector than any other country in the world during the first half of 2018.
Regulators have demonstrated their commitment and willingness to work side-by-side with fintechs; the FCA was the first regulator to create a domestic sandbox in 2016, while the Bank of England has completed proof of concepts with start-ups such as enterprise software firm R3. It also launched its own Fintech Hub in March 2018.
This subsequently led to calls for a global sandbox, which received near-unanimous approval from regulatory bodies all over the world.
It is important to note, however, that not everyone believes in the importance of regulatory sandboxes. The chief of New York’s financial regulatory body said on Tuesday that the agency is “fiercely opposed” to the U.S. Treasury Department’s recent endorsement of regulatory “sandboxes” for fintech firms. Superintendent Maria T. Vullo said, “the idea that innovation will flourish only by allowing companies to evade laws that protect consumers, and which also safeguard markets and mitigate risk for the financial services industry, is preposterous.”
It will be interesting to see whether the initiative will achieve its aims and whether financial services regulators will effectively collaborate to balance the potential benefits of innovation with their traditional policy objectives.
Chatsworth welcomes this positive collaboration between regulators and aspiring fintechs, both domestically and internationally, as this gives companies a safe environment to test new ideas and learn how to effectively scale their business concepts. We would encourage fintechs, investors, governments, and other interested parties to participate in the consultation process to ensure it is transparent and fair to potential firms wishing to apply for cross-border testing.