Managing regulations and compliance is becoming increasingly difficult for banks because it is time consuming and expensive, experts claim. For example, when asked by a journalist about the difficulties for top banks in managing compliance costs, a top investor commented: “(…) that is a massive challenge for these banks.”
The Australian Parliament, through the voice of Treasurer Scott Morrison, recently introduced a bill aimed at removing the regulatory barriers to Crowd-Sourced Funding (CSF). CSF is a fundraising model that allows individual investors to directly invest in small companies, which might otherwise struggle to access affordable sources of funding. The concept of CSF is better known as ‘equity crowdfunding’ in other countries, and is for instance described as such in the American legislation.
The alternative finance sector in France is experiencing great momentum. It’s the second largest market in Europe after the UK, with a volume that has more than doubled between 2013 and 2014 (+103%) and then again between 2014 and 2015 (+107%), reaching €319 million in the past year. France is also home to nearly half of the largest banks in Europe. The updated regulations, published in the Journal Officiel the 30th of October 2016, could be what is needed to allow the market to take off and reach the next level.
On October 18, 2016 the Malaysian Central Bank published its financial technology regulatory sandbox framework to enable the live experimentation of fintech solutions in the country. This initiative echoes the statement issued by the Indonesian Central Bank in late September: “Next month we will launch a fintech office [and] establish a special task force that will coordinate with other fintech offices". In this post, we will get an update on what's happened since they've been deployed.
The Emirates may have been less responsive than others to take action on the disruption happening with financial technology, but in the last year, along with the growing enthusiasm showed by the local environment of finance pioneers and investors, we have seen a good number of new initiatives that should catalyze the local digital finance market to scale.
A ‘Fintech Sandbox’ is a technology environment where companies/firms would work in close partnership with regulators to develop their ideas and technology without the red tape that may inhibit their potential growth. In the UK, France, Singapore, Hong Kong and Australia, regulators have already or are currently laying the groundwork for a such a Sandbox environment that gives the firms the ability to test a new product or business model with a limited launch, without going through the full regulatory process.
The Hong Kong Monetary Authority (HKMA) last week announced the launch of a financial technology sandbox, to allow banks to test new innovative products that do not yet meet compliance standards. The new regime is valid as of September 6.
China announced rules to tighten regulation of the national $60 billion P2P lending industry, with a document issued by the Ministry of Public Security, China Banking Regulatory Commission (CBRC), the Ministry of Industry and Information Technology, and the Cyberspace Administration of China. The new regulations took effect on August 24, 2016, but platforms now have one year to adapt their practices according to the framework.
The Bank of Japan (BOJ) returns talking about the adoption of financial technology in their system in a seminar hosted at their HQ in Tokyo July 29. This comes after the central bank announcement this year in April to have established an in-house section at the BOJ in charge of fintech to explore the opportunities and to offer guidance to financial institutions seeking to step into the fintech market.
The adoption of equity and debt crowdfunding has left most if not all policy makers and regulatory bodies challenged to find the right framework to properly regulate the array of platforms launching into the market. These platforms have given accredited and retail investors alike access to alternative investments they would not otherwise have. One area overlooked by most investors and now being addressed by regulatory bodies is investment liquidity. Venture capitalists and business angels traditionally would achieve liquidity with the acquisition of the investment. Crowdfunding differs, an IPO or acquisition isn’t out of the questions but it certainly is less likely.