Financial regulators are not passive actors when it comes to private sector financial innovation. While they are subject to a degree to political will, they are still the creators of worlds. Careful thinking on their parts about regulatory priorities and regulatory design can be profoundly influential.
A regulator will want to decide where its key challenges, in relation to recognising and tracking fintech, lie. Different regulatory challenges provoke different regulatory responses. For example, in trying to answer the questions above (who is innovating, what the innovations and context are, etc.), the regulator may decide that one of its main challenges is that it does not have sufficient data about a particular fast-moving fintech innovation. It could then consider regulatory responses designed to slow innovation down and force information upward. Licensing and permitting regimes, including for access to a government-sponsored fintech sandbox, are one such technique. Alternatively, the regulator may decidethat a key challenge is tracking incremental innovation around fintech, where change across time may prove to be consequential even if each incremental innovation is not. In that case, an appropriate response may be to improve its information-gathering capacity and to establish benchmarks for safety, investor protection and other regulatory goals that it can track across time. If the challenge is identifying fintech innovations at or outside its jurisdictional boundaries, a regulator could choose to engage with other regulators in adjacent spaces, and to map out the unregulated or under-regulated areas. Quite a bit can be accomplished under regulatory authority, through regulatory design choices, even when political will or attention is somewhat lacking.
These are subjective choices, which require judgment and expertise. Regulators across jurisdictions arc already making many of these choices. This chapter seeks to help support those efforts, by making explicit the main questions that a regulator should ask when trying to regulate fintech. Approaching questions of regulatory design and regulatory priorities in a more systematic and intentional way, with the understanding that private sector innovation is the key challenge that regulators confront today, has the potential to produce more comprehensive and better regulatory outcomes.
Financial regulation matters. Regulation is at the operational front line when it comes to breathing life into our most cherished social commitments. Seemingly mundane regulatory decisions implicate questions of fairness, equality and justice, and thus directly influence peoples’ lives and prospects. We see their effects in our politics, and our communities. Financial regulation in particular can be the site of some of the most pernicious effects of power and domination. In its best forms, however, it can also be the site of broadly distributed, almost democratic, opportunities for human flourishing. Fintech presents that potential as well as those risks, and financial regulators arc uniquely positioned to manage and help direct it for the benefit of us all.
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