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Regulating a Revolution: From Regulatory Sandboxes to Smart Regulation

67 Pages Posted: 19 Aug 2017 Last revised: 12 Oct 2017

Dirk A. Zetzsche

ADA Chair in Financial Law / Inclusive Finance, University of Luxembourg; Heinrich Heine University Duesseldorf - Faculty of Law - Center for Business & Corporate Law (CBC)

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law

Douglas W. Arner

University of Hong Kong - Faculty of Law

Janos Nathan Barberis

The University of Hong Kong - Faculty of Law

Date Written: August 14, 2017

Abstract

Prior to the Global Financial Crisis, financial innovation was viewed very positively, resulting in a laissez-faire, deregulatory approach to financial regulation. Since the Crisis the regulatory pendulum has swung to the other extreme. Post-Crisis regulation, plus rapid technological change, have spurred the development of financial technology companies (FinTechs). FinTechs and data-driven financial services providers profoundly challenge the current regulatory paradigm. Financial regulators are increasingly seeking to balance the traditional regulatory objectives of financial stability and consumer protection with promoting growth and innovation. The resulting regulatory innovations include technology (RegTech), regulatory sandboxes and special charters. This paper analyses possible new regulatory approaches, ranging from doing nothing (which spans being permissive to highly restrictive, depending on context), cautious permissiveness (on a case-by-case basis, or through special charters), structured experimentalism (such as sandboxes or piloting), and development of specific new regulatory frameworks. Building on this framework, we argue for a new regulatory approach, which incorporates these rebalanced objectives, and which we term ‘smart regulation’. Our new automated and proportionate regime builds on shared principles from a range of jurisdictions and supports innovation in financial markets. The fragmentation of market participants and the increased use of technology requires regulators to adopt a sequential reform process, starting with digitization, before building digitally-smart regulation. Our paper provides a roadmap for this process.

Keywords: FinTech, Innovation, Regulatory Sandbox, Restricted License, Special Charters, Piloting, Testing, RegTech, Insurtech

JEL Classification: G23, G24, G28

Suggested Citation

Zetzsche, Dirk A. and Buckley, Ross P. and Arner, Douglas W. and Barberis, Janos Nathan, Regulating a Revolution: From Regulatory Sandboxes to Smart Regulation (August 14, 2017). Fordham Journal of Corporate and Financial Law, Forthcoming; European Banking Institute Working Paper Series 2017 - No. 11; University of Luxembourg Law Working Paper No. 006/2017; Center for Business and Corporate Law (CBC) Working Paper Series 001/2017; University of Hong Kong Faculty of Law Research Paper No. 2017/019; UNSW Law Research Paper No. 71. Available at SSRN: https://ssrn.com/abstract=3018534

Dirk Andreas Zetzsche (Contact Author)

ADA Chair in Financial Law / Inclusive Finance, University of Luxembourg ( email )

Luxembourg, L-1511
Luxembourg

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/research_unit_in_law/equipe/dirk_andreas_zetzsche

Heinrich Heine University Duesseldorf - Faculty of Law - Center for Business & Corporate Law (CBC) ( email )

Universitaetsstr. 1
D-40225 Düsseldorf
Germany
+49 211 81 15084 (Phone)
+49 211 81 11427 (Fax)

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law ( email )

Sydney, New South Wales 2052
Australia

Douglas W. Arner

University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01237

Janos Nathan Barberis

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

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