AFI Innovative Regulatory Approaches Toolkit
46 Pages Posted: 19 Apr 2021
Date Written: April 2021
Countries and economies around the world are seeking ways to foster their digital finance and financial technology (‘FinTech’) ecosystems to better support financial inclusion and sustainable development. At the core of such efforts are supporting the development of new products and services, bringing more competition and consumer choice into their financial systems and increasing savings and investment to support both individual and community development. At the same time, the potential of innovation must also be balanced against potential risks, in particular financial stability, consumer protection and market integrity concerns.
In order to support these objectives, regulators are developing new regulatory approaches, including innovation hubs and regulatory sandboxes (which we collectively term, ‘innovation facilities’) as well as new policy frameworks and the use of technology for regulatory and supervisory purposes (‘RegTech’ and ‘SupTech’). Innovation facilities are created to offer direct and indirect support to novel digital finance and fintech initiatives in a controlled environment. They are underpinned by foundational infrastructure, including mobile and other communications systems especially internet access, digital identification systems (in particular sovereign systems), frameworks to encourage simplified and widespread opening of financial and mobile money accounts, and interoperable electronic payment systems. All of the above enable a range of e-government services as well as an environment for wider commercial development, supporting financial inclusion and progress towards the UN Sustainable Development Goals (AFI 2018).
Such foundational infrastructure works best in the context of appropriate balanced and proportional regulatory approaches to innovation, digital finance and FinTech. This includes the general efficiency of the legal system, human capital development, support for research and development, access to information, and availability of financing. More narrowly, it also depends on the use of technology by regulators and supervisorsthemselves (RegTech and SupTech) in order to better achieve regulatory objectives, enhance competition and efficiency (AFI 2020a).
This Toolkit provides a structured approach to the implementation considerations of innovative regulatory approaches including innovation facilities for authorities with jurisdiction over financial products and services (which we term ‘Regulators’). It aggregates a variety of resources and case studies to provide guidance for Regulators seeking to answer the following questions:
1. What are innovation facilities?
2. What are the pre-requisites for effective innovation facilities?
3. When should Regulators consider implementing an innovation facility?
4. How to implement an innovation hub?
5. How to implement a regulatory sandbox?
6. How to steer efforts towards regional cooperation in innovation facilities?
This Toolkit aims to complement existing guidance on innovative facilities by the Alliance for Financial Inclusion and other stakeholders through providing additional practical evaluation tools. In using this Toolkit, regulators from the AFI network and beyond are invited to employ the attached workbook, which provides self-assessments and exercises to help guide their decision-making process.
Keywords: FinTech, RegTech, financial inclusion, UN Sustainable Development Goals, regulatory sandbox, innovation hub
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