Technologies such as artificial intelligence, the distributed ledgers, and big data are enabling new business modes that across financial services industry and its supply chains at breakneck speeds and is leaving regulators fighting to keep pace with the changes.
In a recent note published by the World Federation of Exchanges, the global industry body called for regulators and authorities to work actively with the industry when writing and implementing new regulations and standards regarding market infrastructure.
“New technologies can benefit both individual consumers and firms by enabling greater access to financial services, choice, efficiency, and a more competitive landscape,” wrote the authors of the note. “However, they can also introduce risks, including operational, data privacy, and cyber-related. Exchanges and post-trade infrastructure providers are considering how to use these technologies to offer new services, improve operational efficiency and cut costs while ensuring the markets remain safe and resilient.”
The seven high-level principles developed by the organization’s Fintech Working Group, which the industry body established in 2017, include:
- In general, innovation should be market-driven and not be constrained by unnecessarily by regulation;
- Legislation, rules, and practices should only be adopted if strictly required; the scope of existing regulations should be broadly sufficient to extend to many or most potential FinTech initiative;
- Any regulatory approach should encourage innovation while ensuring investor protection and system stability;
- While the technology itself may present unique risks, the underlying principles of outsourcing remain sound and appropriate and so regulated entities use of new FinTech applications and solutions should be consistent with the outsourcing of any other function in the absence of other regulatory impact;
- There should be open, regular and proactive dialogue between regulators and the market in order for authorities to understand the technology which unpins FinTech applications, and ensure the existence of any appropriate regulatory framework;
- FinTech innately international with global applications and uses; regulatory principles and/or guidelines, therefore, be developed at the global level to reflect the increasingly global nature of markets; and
- There should be consistency in the application of rules to both incumbents and new FinTech entrants in the interests of maintaining the integrity, stability, and fairness, of the system.
The WFE also recommended in its note that regulators work to harmonize their fintech regulations globally so that they could promote common standards that are as consistent as possible while being sufficiently flexible and workable.
