Contrasting Regulatory Approaches to FinTech

Written by Amy Ciolek, Nicola Greenberg and Kishaya Delaney

Various crypto news sites are publishing that the UK’s Financial Conduct Authority (FCA) has accepted 11 blockchain-based financial service providers into its recent (4th) SandBox cohort.  This includes startups testing cryptoasset offerings.  The FCA has stated: “We are keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks”. 

The published list of cohort participants is diverse, and ranges from behavioral tools to blockchain fundraising applications.

What is clear is that with a fourth cohort, an active program and eagerly observant regulators, the FCA presents as a progressive and open regulator, which is keen to explore innovative new technology offerings.

The RBA has recently set out its views, as reported in the Financial Review on 8 July 2018, through headlines “Fintech will pose systemic risk as it grows, warns RBA”.  The article states that the RBA’s assistant governor Michele Bullock told a conference in China that “Most of the regulation set for financial institutions is aimed at the stability of financial institutions….If some of these companies get big enough there will be systemic issues.”

The RBA’s view seems moderately inconsistent with  APRA’s latest move, expanding its policy to restricted ADI licences to foster innovation and competition in the banking industry.  The view also indicates that Australia is not prepared for the economic and financial environmental changes ahead, and our regulators have a journey ahead.

The Financial Review article also states that Ms Bullock said that Initial Coin Offerings (ICOs) are an example of innovation for small companies looking to get a venture off the ground, although  there were examples of fraudulent ICOs.  For a regulator of this stature to acknowledge the positive utility of (some) ICOs, is it time for other regulators to embrace the ICO with more certainty? Or at least invite ICO’s into a closely monitored test platform such as the Sandbox to learn about risk management and true potential benefits?

Sadly, without clear guidance and regulatory support, it is likely that genuine ICOs (or innovative arrangements involving ICOs) will be pushed underground or offshore, dragging the tech talent and innovative thinkers with them.

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Filed under ASIC Guidance, Australia, Banking, Digital Currency, Financial Services Regulation, Fintech, ICO

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