Fintech Without Borders: Regulators Consult on Global Financial Innovation Network

On August 7, a group of regulators from 11 jurisdictions published a consultation (the Consultation) on the Global Financial Innovation Network (the GFIN), which aims to promote international cooperation on innovation and the use of technology in financial services (FinTech) and in regulatory processes (RegTech).

The group — which includes the U.S. Consumer Financial Protection Bureau, the UK Financial Conduct Authority (the FCA), the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) — is one of the first major collaborative efforts on FinTech and RegTech issues among regulators in developed financial services markets. The Consultation builds on the FCA’s proposal earlier this year to create a “global sandbox” for innovative financial services firms.

This post summarizes the proposed role of the GFIN, the issues on which its founding regulators are consulting and how these may affect financial services firms.

What is the GFIN?

The GFIN is a group of financial services regulators that plan to create “a collaborative policy and knowledge sharing initiative” to advance public policy objectives in the financial sector through innovation in financial services. Its proposed mission statement refers to promoting “financial integrity, consumer wellbeing and protection, financial inclusion, competition and financial stability” and emphasizes a process of “sharing experiences, working jointly on emerging policy issues and facilitating responsible cross-border experimentation of new ideas.”

What is the Consultation about, and who should respond?

The group of regulators that published the Consultation (the GFIN Regulators) is inviting feedback on the GFIN’s mission statement and functions.

The Consultation proposes the following three main functions for the GFIN:

  • Network of regulators – a community of regulators and related organizations that promote information and knowledge sharing on emerging innovation trends, their own local experimentation, tests and initiatives, and the provision of accessible contact information for firms.
  • Joint policy work and regulatory trials – collaboration between regulators on key policy questions to inform approaches taken by regulators, with the view to support the work of standard-setting bodies. This could also include regulators collaborating on RegTech solutions.
  • Cross-border trials – support for companies in conducting trials across multiple jurisdictions to allow them to navigate multijurisdictional regulatory issues, in both business to business and business to consumer activities.

The GFIN Regulators are encouraging responses from “innovative financial services firms, financial services regulators, technology companies, technology providers, trade bodies, accelerators, academia, consumer groups and other stakeholders keen on being part of the development of the GFIN.”

Firms should submit responses to Feedback submitted to this email address will be shared among the GFIN Regulators unless a firm specifically states otherwise. Alternatively, firms may provide feedback or arrange to discuss the Consultation with one or more particular GFIN Regulators. Contact details for these purposes are provided in the Consultation.

What is the proposed “global sandbox”?

A regulatory sandbox is a platform for firms to test innovative new products, services or business models on a limited scale before a full launch. A number of national regulators including the FCA, the HKMA and the MAS have developed such sandboxes, and a growing number of firms, including new market entrants and incumbents, have been using them to gain clarity on the regulatory treatment of new services. See further Sidley Update: FinTech and Regulatory Sandboxes in the UK, Hong Kong and Singapore.

In February 2018 the FCA published a consultation on the idea of a “global sandbox” to provide a similar platform for firms to test new products, services and business models across multiple jurisdictions. These proposals formed the basis for GFIN and the current Consultation.

How will these developments affect financial services firms?

There is significant uncertainty regarding how existing laws and regulatory regimes apply to certain FinTech activities such as issuing and using virtual currencies and other crypto assets and the use of blockchain and artificial intelligence in financial services such as banking, payments and investment management. As national and regional policy makers and regulators start to respond to these technological developments, divergent approaches may emerge. This could be detrimental to firms that operate or offer their services in multiple jurisdictions.

If the GFIN is appropriately resourced and given a clear mandate to limit regulatory divergence and promote a measured and proportionate approach to regulating FinTech, it could have a significant positive effect on the development of regulatory policy in this area. In particular, it could give firms and regulators a suitable forum for discussion of the benefits and risks involved in different areas of FinTech before any regulatory changes are set in motion.

The Consultation includes questions on how the GFIN should develop and what kind of policy outcomes it should pursue. This presents an opportunity for firms, particularly those that operate across national borders, to contribute to policy developments that could lay the foundations for regulatory approaches to FinTech across the globe in the years ahead.