Regulation is an integral part of today’s society and one that many of us aren’t even truly aware is thrumming around us. From the laws we abide by every day, to the rules protecting consumers against corporate exploitation, regulation is all around us, constantly keeping us and the commercial bodies around us in line with fair practice. With the rapid rise in FinTech across different financial services, it’s only right that these same regulatory bodies are starting to pay attention, but with so many great technologies in production, could regulation harm their growth? We’re exploring exactly that, below.
How Do You Define FinTech?
While FinTech is technically jargon for ‘financial technology’, this term has more recently been associated with the start-up and development culture flooding through the financial industry. A FinTech company is considered to be any business that utilises new technologies to help better their financial services for consumers and other clientele. They take power away from leading financial institutions such as banks and offer accessible technology to smaller businesses looking to revolutionise the way consumers and businesses can interact financially in a more efficient, speedy and convenient way.
The Role Of Regulation In Financial Technology
Without regulation, we wouldn’t have the ‘disruptive FinTech’ that we have today. After all, where no regulation is present, there is nothing to disrupt. These regulations are often put into place by a country’s leading regulatory body. Some of the leading bodies as follows:
- The Financial Conduct Authority (FCA) – Covering all of the UK’s financial activity, the FCA is not affiliated with the government but is recognised around the country as the leading body in charge of financial activity and service regulation. Most FinTech businesses aim to be licenced by FCA, because paying clients from all over the scope of financial services, whether they are transaction facilitating companies, fund raisers or trading platforms, expect secure, fast and professional transactions. Financial technology businesses have to prove that they have a good track record and are secure, and adhere to a necessary strict criteria in order to be registered.
- SEC – The SEC is the leading body in the USA offering the same service as the Financial Conduct Authority in the UK. Why they are not a part of the federal government, it is their responsibility to enforce laws and regulations relating to securities, stock exchanges and other financial activity.
- CySEC – CySEC is the regulatory in Cyprus, whose regulation often reflects and is in adherence with all MiFID regulation as per EU law. Typically associated with forex trading and binary options, CySEC is understandably a leading regulatory body to consider when discussing FinTech and are even known for providing registration and approval to overseas services.
Regulation within Financial Technology has always been designed to keep consumers and businesses safe while working with finances, whether that’s in the form of currency or assets. Regulation allows businesses and consumers alike to retain control over everything from their own finances, to Cloud storage online and so it’s easy to see just why we need these institutions in place.
Without regulation, the potential for exploitation could be huge, which is certainly something that all consumers want to avoid – in fact, a key focus of most regulatory bodies is to weed out and eradicate all money laundering, produce an anti-terrorist space and introduce a number of cybersecurity measures to ensure our financial data is safe online and in the hands of lenders across the country.
Could Regulation The Rise Or The Downfall?
Within FinTech, room for growth is a must for any start-up company looking to make their mark and actually introduce improvement into the industry but with the clear need for regulation to keep everything in check, the potential for a downfall is certainly rife.
This is particularly clear in the USA. Despite initially having one of the leading FinTech markets across the world, the north American country has hit a low as of late with investments in these companies hitting an all-time low since the hype began and, instead, Asia starting to grow as a FinTech hub. With US regulation changing, more and more countries are being given the chance to excel in the industry, taking over from the corporate dominance that the US has maintained over the past few decades. Instead, Europe and Asia could gain the chance to excel considerably but what if their regulatory bodies begin to stifle development?
It’s pure logic to see that too much regulation could lead to the downfall of FinTech as a concept, but with the sheer power and speed of development going on today, the question that remains is whether these bodies could even keep up if they tried. If banks and other financial institutions began to adopt financial technologies, the possibility for FinTech to take over before regulation can be put into place to stop the growth is high.
Financial Technology has been a part of our financial services for quite some time now. From the card machines we use to pay for goods and services, to the online banking we have available at the tap of a screen, our everyday banking and monetary habits have become a part of our lives easily. With this in mind, the argument for allowing FinTech to grow and develop is an understandable one. Without growth, we wouldn’t have the services we have today but without regulation, exploitation and inappropriate use of money is a risk that can’t be ignored. What are your thoughts?