How FinTech Became An International Unifying Phenomenon

Elena Mesropyan, LTP

Customer-centricity, simplicity and scalability, cost efficiency, the absence of the need to protect existing business, and lack of regulatory burden along with legacy IT systems/branch networks – these are just some of the reasons FinTech is not a niche anymore, but a powerful force in transforming the financial services industry. Combining venture and M&A investment, FinTech deal value in Q1 2017 hit $3.2 billion, not a steep drop from the $4.15 billion registered in Q4 2016.

 

The potential of this industry, however, cannot be fully understood and leveraged while contained in national borders. In 2017, FinTech became impactful enough to turn heads among world’s’ watchdogs, whether it’s for never-seen-before speeds of funds accumulation through new instruments or increasing financial threats associated with those instruments for a significant number of individuals around the world.

In any case, it became evident that 8,000+ FinTech startups around the world can no longer operate effectively and productively in uncertain regulatory environments – regulatory uncertainty disproportionately affects first-movers and discourages innovators. To scale the opportunities presented by imaginative entrepreneurs in local markets, international authorities accelerated their efforts to attract and allow easy integration of international teams in foreign markets (Estonia, probably, is one of the most forward-thinking ones in that sense).

One of the first concepts that came into existence to facilitate innovation adoption beyond national borders was the concept of a regulatory sandbox, which increases time-to-market by about a third at a cost of ~8% of product lifetime revenue. More interestingly, estimations from other industries suggest that valuations may be reduced by ~15% due to regulatory uncertainty. By November 2016, nine financial authorities have launched regulatory sandboxes (ADGM, OSC, HKMA, MAS, FCA, and more) to enhance access to capital, curate quality of products reaching national markets, and offer a regulatory relief and assurance of the best solution for the end-user.

Regulatory sandboxes, most importantly, were some of the earliest government-level instruments used by forward-thinking authorities to attract and attain international talent building innovative solutions. Never before there has been such a massive precedent of financial watchdogs considering any regulatory relief for entrance into the most stringently regulated industries globally – the financial services industry.

The impact of FinTech on international policies did not stop on expanding the minds of regulators to the level of running a sandbox – starting 2016, governments started to actively cooperate on international FinTech initiatives. Increasingly,countries are recognizing that international cooperation is crucial to help develop their domestic FinTech market. Asia-Pacific, in particular, has been one of the most active regions where progressive authorities pay close attention and take actions on the deeper exploration of opportunities that FinTech opens in national markets.

Party/Country
Counterparty
Date
Description/Purpose
Finance Minister, India Chancellor of the Exchequer, UK Jan 19, 2016 Joint statement where India and the UK agree to work together on building commercial and regulator-to-regulator links that can underpin further FinTech growth in both countries.
ASIC, Australia Financial Conduct Authority (FCA), UK March 23, 2016 Agreement to support innovative businesses, which among other things is intended facilitate referrals and cooperation between their respective markets.
MAS, Singapore UK Financial Conduct Authority (FCA) May 11, 2016 FinTech bridge which included the signing of a regulatory cooperation agreement, providing a framework for referrals, cooperation and information sharing between their respective markets.
Digital Economy Corporation (MDEC), Malaysia UK Trade & Investment (UKTI), June 2, 2016 Memorandum of understanding to strengthen partnerships in the ICT sector and to jointly promote the adoption of digital economy solutions, including in relation to FinTech.
ASIC, Australia Singapore, MAS June 16, 2016 Innovation Functions Co-operation Agreement intended to help innovative businesses to grow and expand into their respective markets.
Ministry of Trade & Industry, Singapore Department of Commerce, United States Aug 2, 2016 Memorandum of understanding establishing a collaboration platform that will focus on opportunities in the infrastructure sector, including smart city solutions and the digital infrastructure supporting the FinTech sector.
MAS, Singapore Swiss Financial Market Supervisory Authority (FINMA) Sep 12, 2016 Cooperation agreement to foster greater cooperation and facilitate information sharing on FinTech.
ASIC, Australia Capital Markets Authority of Kenya (CMA), Kenya Oct 21, 2016 Cooperation agreement aimed at promoting innovation in financial technology services.
The government of Andhra Pradesh, India MAS, Singapore Oct 22,  2016 Cooperation agreement to promote innovation in financial services in their respective markets.
MAS, Singapore Korean Financial Services Commission (KFSC) Oct 24, 2016 Cooperation agreement to foster greater cooperation and facilitate information sharing on FinTech.
ASIC, Australia Ontario Securities Commission (OSC), Canada Nov 2, 2016 Cooperation agreement providing a framework for referrals, cooperation and sharing information to promote innovation in their respective markets.
PBOC, People’s Republic of China FCA, UK Nov 11, 2016 Cooperation agreement aimed at facilitating information sharing and promoting innovation in financial services.
HKMA, Hong Kong FCA, UK Dec 7, 2016 Cooperation agreement providing a framework for referrals, cooperation and sharing information to promote innovation in their respective markets.
MAS, Singapore Abu Dhabi Global Market (ADGM) March 8, 2017 Cooperation agreement to foster closer cooperation on developments and initiatives that nurture FinTech entrepreneurship and support innovation in financial services in their respective markets.
JFSA, Japan FCA, UK March 9, 2017 Exchange of letters on FinTech cooperation framework providing for referrals, cooperation and sharing information to promote innovation in their respective markets.
JFSA, Japan MAS, Singapore March 13, 2017 Cooperation framework providing for referrals, cooperation and sharing information to promote innovation in their respective markets.
MAS, Singapore Autorité de Contrôle Prudentiel et de Résolution (ACPR), Autorité des Marchés Financiers (AMF), France March 27, 2017 Cooperation agreement to share information about emerging FinTech trends, potential joint innovation projects, and regulatory issues pertaining to innovative financial services.
ASIC, Australia Indonesia, Otoritas Jasa Keuangan (OJK) April 21, 2017 Cooperation agreement concerning information exchange on innovation in financial services, including technology updates, regulatory development and FinTech innovation hubs.
SFC, Hong Kong FCA, UK May 12, 2017 Cooperation agreement providing a framework for referrals, cooperation and sharing information to promote innovation in their respective markets.
MAS, Singapore International Finance Corporation (IFC) of the World Bank Group May 23, 2017 Memorandum of cooperation providing for establishment and development of the ASEAN Financial Innovation Network which aims to facilitate broader regional adoption of FinTech innovation.
MAS, Singapore The Association of Supervisors of Banks of the Americas (ASBA) June 9, 2017 Memorandum of understanding, which provides a framework for FinTech cooperation between Singapore and ASBA member countries.
ASIC, Australia SFC, Hong Kong June 13, 2017 Cooperation agreement which provides a framework for cooperation to support and understand financial innovation in each economy.

Data source: The FinTech Market in Asia Pacific – An Overview, 2017

By the look of existing partnerships, there is no doubt we will see more collaborative work that will inevitably benefit the governmental structures, the end-user in every corner of the world, and the international massive force of talented entrepreneurs. While Hong KongSingapore, and Australia are all in with partnerships, the rest of the world is catching up with a certain future, where collaboration will drive innovation.

Not only does FinTech bring together governments, its unifying force actually first started to show in domestic marketsamong financial institutions and startupsImmense mutual benefits have been a strong incentive for startups and commercial banks to start transforming traditionally rigid industries together – financial services and insurance. Indeed, “…the best way to foster progress is by working as a global and collaborative ecosystem,” emphasized Laura Gaviria Halaby, Global Head of FinTech Acceleration at Citi, in an exclusive interview with the LTP Team.

Source: LTP

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