Written by Cemal Karakas, Carla Stamegna,
FinTech, the abbreviation for financial technology, is a broad term. It is mainly used to refer to firms that use technology-based systems either to provide financial services and products directly, or to try to make the financial system more efficient. Examples include robotic trading, cashless payments, crowdfunding platforms, robo-advice, and virtual currencies. The value of global FinTech investment in 2015 grew by 75 % to US$22.3 billion. Corporates, venture capital and private equity firms have invested more than US$50 billion in almost 2 500 global FinTech start-ups since 2010.
The rapidly growing FinTech sector has its rewards and challenges (e.g. data and consumer protection issues, risk of exacerbating financial volatility and cybercrime) and is increasingly attracting political attention. The European Commission set up a Financial Technology Task Force (FTTF), and the European Parliament’s Economic and Monetary Affairs Committee (ECON) presented its draft report on FinTech in January 2017. At G20 level, the Financial Stability Board (FSB) will present its study scrutinising FinTech in July 2017.
Due to the broad scope of FinTech, regulators can face a dilemma: rule-based regulatory frameworks set out compliance obligations clearly, but these are often expensive from a start-up perspective and could be an obstacle to innovation and job creation; principle-based regulation is more flexible, but could create some uncertainty as to what exactly is expected in terms of compliance.
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