Date posted: 8/06/2017 4 min read

Regulators must evolve or risk hindering fintech growth

Regulatory regimes can make or break emerging businesses in the digital economy.

Financial market regulators need to innovate or run the risk of slowing growth in the global NZ$24 billion technology-based financial services industry, warns a new report by Chartered Accountants Australia and New Zealand.

“A thriving fintech industry brings with it new investment, jobs and innovation – all of which are catalysts for economic growth,” says the report The Regulator of 2030: Regulating our digital future.

It acknowledges growing challenges faced by all regulators as new technologies emerge at a pace many are unable to match.

EY research commissioned by the United Kingdom’s HM Treasury indicates “that jurisdictions with supportive and flexible regulatory regimes have relatively successful fintech industries,” the report says.

“If Australia and New Zealand are to continue to attract investment, and move from ‘up-and-coming’ fintech centres to ‘established respected’, we must ensure that our regulatory regimes protect investors while remaining at least as progressive as those of our neighbouring countries.”

The emergence of digital platforms and new business models is no match for current regulatory structures, many of which were designed with bricks-and-mortar firms in mind, the report says. 

“It’s a challenge for regulators to keep up as a tidal wave of new technologies emerge daily,” said Chartered Accountants ANZ interim Chief Executive Simon Grant.

“But it is vital regulators understand them before they even consider intervening.”

Grant predicts that regulators in 2030 will look very different to the regulator of today

“The regulator of the future will be digitally transformed, they will collaborate, they will have to be flexible and quick to adapt. 

“Funding is an important factor – the level of digital transformation required by regulators requires significant government investment and cross agency sharing of information.”

Also discussed in the report is the need for regulators to supplement their stereotypical financial and legal skill sets with technologists, computer scientists, engineers and analysts. The workplace of the future regulator will mirror the organisations they regulate, concludes the report.

The report acknowledges that regulatory regimes can make or break emerging businesses in the digital economy, and calls for Australian and New Zealand regulators to adopt a flexible and agile mind-set to encourage innovation and investment.

The report says that the economies most likely to thrive in the digital age will be backed by flexible regulatory regimes which successfully balance the need to foster innovation against necessary consumer protection and predicts that emerging technologies such as blockchain could result in real-time regulation.

“It’s adapt or be left behind,” says Grant. “We have seen some great progress in both countries with initiatives such as the innovation hub in Australia and the financial markets legislation in New Zealand, but there is still a long way to go.”

Read The Regulator of 2030: Regulating our digital future report

This paper explores the rapidly changing landscape brought about by technology and how it undermines many of the barriers that protect public authority. We examine the readiness of regulators in 2030 and beyond.

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