Global Rules for a Global Market Place? – The Regulation and Supervision of FinTech Providers

Abstract

Financial technology (FinTech) revolutionizes the way in which financial services are rendered. Although the phenomenon is not new, it has taken on a novel dimension. Markets which were once national are morphing into global ones. The interest in regulating them not only exists, but to some extent is even higher compared to traditional services. This article illustrates the many different needs for regulating FinTech providers, from the protection of investors and consumers to the fight against money laundering and tax evasion. The article demonstrates that these questions cannot be adequately addressed by a laboratory free space or by self-regulation. It also shows that idiosyncratic national rules would result in legal fragmentation and deprive the world of the benefit that digital services can provide.

The paper suggests therefore that global standards would be the most adequate solution for the regulation of global services. It proposes to re-conceptualize the FSB and to transform it into a ‘Financial Stability and Innovation Board’. In light of the diverging customs, knowledge and practices of residents around the world, the global standards need to be complemented by tailored national rules. Also, global rule harmonization will not cause differences in supervision to disappear. Regulatory competition and arbitrage might give incentives to countries to lower their supervisory standards, accepting negative externalities for residents of other states in order to become a global FinTech hub. This tendency must be countered by a competition for the strictest quality of supervision. Since such a competition requires transparency, this article suggests requiring mandatory information about the competent supervisor in any marketing and customer communication by a FinTech service provider. Through experience and ratings of supervisors, a run for quality will be triggered.

Keywords: FinTech, jurisdiction for regulation and supervision, regulatory arbitrage, regulatory competition, regulatory sandboxes, financial stability, competition of supervisors, rating of supervisors, Financial Stability Board, self-regulation of FinTech, BitLicense

JEL Classification: G10, G15, K22, K33, O16, O33