Bank-Fintech Partnerships, Outsourcing Arrangements and the Case for a Mentorship Regime

33 Pages Posted: 17 Jun 2020

See all articles by Luca Enriques

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

Wolf-Georg Ringe

University of Hamburg - Institute of Law & Economics; University of Oxford - Faculty of Law; European Corporate Governance Institute (ECGI)

Date Written: May 30, 2020

Abstract

Fintech firms, once seen as “disruptors” of the traditional banking world, are now increasingly seen as attractive partners for established financial institutions. Such partnership agreements come in different forms and contexts, but most share the goals of outsourcing key banking functions and facilitating market entry for new market players while overcoming relatively tough regulatory hurdles.

Yet such arrangements, while generally to be welcomed, pose a number of regulatory problems, in particular concerning the effective supervision of fintechs that operate outside of the direct purview of regulatory authorities. Questions of enforcement and effective supervision emerge, which may ultimately result in problems regarding market stability and systemic risk. Regulatory sandboxes represent one attempt to address these problems but may fail to do so and are often ineffective or unavailable. Other similar solutions, such as fintech charters and umbrella firms, may help but, similarly, provide an imperfect solution.

Against this backdrop, we make the case for a “mentorship regime,” which provides for a reliable regulatory framework for partnership agreements between fintech firms and established banks. This would allow for a de facto “private sandbox” where experienced firms could mentor new startups and help them to cope with a complex regulatory process. At the same time, a state-backed mentorship plan would clear up the allocation of responsibilities, supervision competences, and liability questions and thus overcome problems of arbitrage and abuse. Ultimately, a mentorship regime may show the way to a new and more reliable future system of banking, making the well-established contractual practice of outsourcing banking services more reliable.

Keywords: fintech, banking licence, outsourcing, regulatory sandbox

JEL Classification: G21, G23, G28, K22

Suggested Citation

Enriques, Luca and Ringe, Wolf-Georg, Bank-Fintech Partnerships, Outsourcing Arrangements and the Case for a Mentorship Regime (May 30, 2020). European Corporate Governance Institute - Law Working Paper No. 527/2020, Available at SSRN: https://ssrn.com/abstract=3625578 or http://dx.doi.org/10.2139/ssrn.3625578

Luca Enriques (Contact Author)

University of Oxford Faculty of Law ( email )

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Oxford, OX1 3UL
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European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
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Belgium

HOME PAGE: http:/www.ecgi.org

Wolf-Georg Ringe

University of Hamburg - Institute of Law & Economics ( email )

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Hamburg, 20148
Germany
+49 40 42838 7787 (Phone)
+49 40 42838 6794 (Fax)

HOME PAGE: http://www.ile-hamburg.de

University of Oxford - Faculty of Law

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

HOME PAGE: http://www.law.ox.ac.uk/people/wolf-georg-ringe

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://ecgi.global/users/wolf-georg-ringe

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