What are regulators in your jurisdiction doing to encourage innovation in the financial sector? Are there any initiatives such as sandboxes, or special regulatory conditions for fintechs?
The Bermuda regulators have provided a robust legislative framework for fintech companies to use as a solid foundation to develop their products and services. Such regulatory framework has provided comfort to potential and actual fintech clients by implementing much needed certainty in a developing industry.
The Bermuda Monetary Authority has proposed establishing an insurance regulatory sandbox dubbed the ‘insurtech sandbox’ (Sandbox). The Sandbox is a space where companies can test new technologies and offer innovative products, services and delivery mechanisms to a limited number of customers in a controlled environment and for a limited period of time.
See Question 18 for further information on insurtech initiatives in Bermuda.
The Government has also introduced a specific fintech work permit policy to support immigration of key personnel in this business sector – see Question 11.
The government of the Cayman Islands is supportive of fintech and focused on implementing regulation which encourages business growth. For example, Cayman Enterprise City is a special economic zone (the SEZ) that provides a cost-effective and time-efficient solution for establishing businesses, including fintech businesses. Within the SEZ, fintech businesses can establish a physical presence in the Cayman Islands with added benefits, such as a tax exempt environment and expedited work permit applications.
The Cyprus Securities and Exchange Commission (CySEC) being the regulator for investment businesses and related matters in Cyprus has recently announced the establishment an Innovation Hub which will act mainly as a type of sandbox platform allowing supervised and non-supervised entities in innovative or new industries to acquire ongoing access to CySEC’s regulatory insights which will principally enable them to duly comprehend and consequently implement the applicable regulatory requirements while engaging simultaneously in an exchange of information and communication with the regulator in an attempt to influence in a positive way the regulator’s decision-making process in this industry.
The Cyprus Innovation Hub, is due to become operational in September 2018.
The Danish FSA has recently established both a dedicated fintech-team, as well as a fintech sandbox initiative where selected companies are granted the opportunity to test their innovations in a secure environment with the support of the regulators.
Finnish regulators and authorities are generally supportive for innovation in the financial sector.
Over the years, Finnish society has been an eager adopter of internet and mobile technologies and adopted e.g. online banking and electronic invoicing very early.
Although Finland does not have any regulatory sandboxes, there have been discussions of whether such should be put up. At the time of writing, no officinal proposals have been published. However, to help fintechs and boost innovations, the FIN-FSA has set up an Innovation Help Desk, which welcomes start up companies as well as already established enterprises in the financial sector that are planning a new type of product, service or way of operating.
The Ministry of Finance has a group of experts monitoring developments in financial technologies with the aim to improve the competitiveness of the Finnish financial markets with due regard to their stability. In addition, there are many fintech related organizations and activities. For example, the Finnish Institute of Financial Technology Helsinki (The 5th) has been established to coordinate fintech related research and boost the Finnish fintech ecosystem, whereas Fintech Finland is a non profit organization created to help fintech companies grow also internationally. Helsinki Fintech Farm should be mentioned as an active fintech platform, too.
There are also some recent sector specific regulations affecting fintechs, such as the Crowdfunding Act (734/2016, as amended).
For a long time, the traditional finance industry was protected by the regulations in place (ie the banking monopoly, investment services regulations, etc). However, today, those regulations constitute a burden for traditional finance institutions since they prevent them from quickly adapting their business model to technological innovations (capital requirements, compliance, etc). Moreover, those regulations are evolving in order to promote and support FinTech activities. French authorities have indeed shown they consider FinTechs to be an important alternative way to provide new sources of financing. François Villeroy de Galhau, Governor of the French central bank and chairman of the French banking regulator, recently said that “the digital revolution is creating challenges but also incredible opportunities that are just waiting to be seized, whether by FinTechs themselves, by the entire financial system – banks and insurers – or by the French and European economy as a whole.” Many regulations implemented in the last few years demonstrate French regulators’ commitment to quickly establish appropriate regulations that foster the development of FinTech companies while ensuring investors’ protection.
Indeed, France adopted a specific regulatory framework for crowdfunding activities in 2014. The main objective was to ensure investors’ protection and information, while allowing crowdfunding activities to develop. A central provision of this framework established a new exemption from public offering requirements (prospectus requirements, etc). Indeed, before the introduction of this regulatory framework, crowdfunding transactions offering over EUR100,000 in equity or bonds were subject to the public offering regulations.
In 2014, a provision was included to ensure that crowdfunding transactions under EUR1 million were exempt from the public offering requirements. This maximum amount has since been raised to EUR2.5 million. The 2014 reform included a new exemption from the banking monopoly (ie the rule prohibiting entities other than licensed banks from granting interest-bearing loans) for crowd lending activities, allowing individuals to grant loans through crowdfunding platforms. However, this exemption from the banking monopoly is limited to individuals (ie not businesses) acting outside of their professional activities. Moreover, loans are limited to EUR2,000 by lender and by project (EUR5,000 if the loan is without interests), the loan maturity has to be less than seven years, and the borrower cannot borrow more than EUR1 million per project. Crowdfunding internet platforms have to register with the French securities regulator either as crowdfunding intermediaries (for donations and crowd lending platforms) or as crowdfunding investment advisers (for investment-based crowdfunding). They are not required to register with the French securities regulator if they already benefit from a licence as financial services providers (prestataires de service d’investissement). Crowdfunding intermediaries and crowdfunding investment advisers have to comply with specific regulatory requirements, including rules of good conduct, professional integrity and the abilities of their managers, professional insurance requirement, etc. Moreover, the regulatory framework details information that crowdfunding intermediaries are required to disseminate to their members in order for them to be able to make informed investment decisions, and information they are required to request from their members to verify their identity.
Furthermore, prior to the entry into force of the abovementioned ordinance dated 1 October 2016, no specific regulation governs the issuance of promissory notes through crowdfunding platforms. Small and medium-sized enterprises (SMEs) used crowdfunding to fund projects by issuing promissory notes without being subject to any specific regulatory requirement. The ordinance amends the general regime of promissory notes (as these amendments are described above) and establishes a new crowdfunding regime for them. Promissory notes issued via a crowdfunding platform are referred to as minibons. Those minibons, since they are not financial instruments, are not subject to the prospectus requirements. They are also not subject to the French banking monopoly: the ordinance specifies that issuers of promissory notes are not violating the monopoly regarding reception of deposit funds from the public, and there is an exemption from the loan granting monopoly for individual investors subscribing to minibons outside of their professional activity and for legal entities which do not do so as a principal activity. Those minibons can be issued in a series (which is not the case for other promissory notes since the 2016 reform) by French corporate companies whose share capital is fully released. They are materialised by a registration certificate including specific mentions given to the investor. They bear a fixed interest rate, which is limited by the usury rate for the professionals’ overdrafts and is amortised at least quarterly in a constant total amount of principal and interest (so that bullet payments at maturity are prohibited). The maximum amount of minibons’ issuance for a single issuer over a rolling 12-month period is EUR2.5 million. Minibons are necessarily issued via internet platforms of a crowdfunding investment adviser or investment services providers. Rules of conducts for the intermediation of shares and bonds also apply in respect of minibons. These platforms may provide for subscription notices and hold a minibons’ register. Transfer of minibons can be done either by an assignment notified to the issuer, or by a distributed ledger technology referred to as blockchain, pursuant to procedures to be set out in a future decree.
Unlike the Financial Conduct Authority which has implemented the “sandbox” concept in the United Kingdom, consisting of a consisting of an experimental phase with lighter regulation for Fintech businesses, Fintech businesses in France do not benefit from preferential regulations. The French regulator’s approach consists of personalised assistance to Fintechs by providing comprehensive support concerning regulatory requirements, although the French government is holding consultations to consider whether to enact less stringent rules specifically applicable to Fintechs companies.
At the European level, it is required to define an overall strategy for EU innovation in financial services. This strategy must cover all the issues raised by Fintech: from data protection to the fight against money laundering; from IT security to consumer protection; from financial stability to the social challenges of banking inclusion; from financial literacy to changes in jobs in the financial sector. It is a project currently being conducted by the European Commission.
Indeed European Commission is working an Action Plan on how to harness the opportunities presented by Fintech's services. European commission wants to build a Capital Markets Union and a true single market for consumer financial services.
The Commission aims to make EU rules more future-oriented and aligned with the rapid advance of technological development. Action Plan sets out 19* steps to support the uptake of new technologies, increase cybersecurity and the integrity of the financial system. At the end, the Commission will present a blueprint with best practices on regulatory sandboxes, based on guidance from European Supervisory Authorities.
Proof of government support, the report mentioned that “The Olympic Games of 2024 offer the opportunity to go further: it is proposed, to reach a wide audience, that part of the ticketing of these games is digitized through tokens issued on a Blockchain.”
The German supervisory authority is relatively restrained with regard to any kind of special regulatory standards for FinTechs by international comparison. Major simplifications different to the standard licensing or market entry process such as sandboxes are not part of the German regulation and are not planned for the foreseeable future.
Both the jurisdiction and its regulator, the GFSC, have been at the very forefront of financial innovation. The Financial Services (Distributed Ledger Technology Providers) Regulations 2017 (the “DLT Regulations”) represents the first legal framework in Europe to cover the use of distributed ledger technology (“DLT”) and, together with the upcoming token offering regulations (the “Token Offering Regulations”), is testament to Gibraltar’s commitment to promote innovation while safeguarding the quality of the jurisdiction and the end customers.
Furthermore, as part of this ongoing effort to stimulate healthy innovation, the GFSC has also established the Innovate and Create Team. The team is made up of experts from a number of organisations involved in the financial industry and its core purpose is to assist businesses with both the implementation of innovative ideas and the introduction of new products and services into the market.
The Malta Gaming Authority will soon be establishing a regulatory sandbox through which it will allow the use of virtual currencies within the gaming industry through a sandboxed test environment and the use of distributed ledger technology (DLT) by operators in the industry. In the financial services sphere, the MFSA has recently introduced a tailored regulatory framework for investment-based crowdfunding to complement traditional bank-financing and provide SME fintechs with a low-cost alternative to loan financing. MFSA has recently issued draft rulebooks on the regulation of initial coin offerings (ICOs) in Malta, which avenue is also being used by fintechs for initial capital raising. A new regulator, the Malta Digital Innovation Authority, has also been set up in Malta, specifically targeting solutions adopting DLT and, eventually, artificial intelligence arrangements. This authority will inter alia, cater for the voluntary certification and supervision of technology arrangements as defined therein, and related service providers upon the satisfaction of a number of conditions. Lastly, it is worth mentioning that under the new DLT framework, applicants who were already providing regulated crypto services within scope of the new regulation prior to the effective date of the three DLT laws (1st November 2018) have been granted a transitory period, akin to a sandbox environment, to adapt to the new regulatory ecosystem.
- Legislation was enacted establishing a regulator to regulate non-banking financial service providers. In addition, the law sets forth that one of the considerations of this regulator is to be the “promotion of technological and commercial innovation in the field of financial services.”
- The Shtrom Law included provisions relating to the creation of an Open API mechanism, price comparing mechanism and more.
- In accordance with the government decision of January 2018 regarding the creation of a testing environment for financial technology companies, an inter-ministerial team was created to examine the creation of a regulatory environment that would facilitate and be adapted to companies using new technology to provide financial services and products in a variety of fields such as credit, payment, clearing and payment solutions, financial management, banking services and more. Accordingly, the Ministry of Finance is currently examining the possibility of creating a ‘regulatory sandbox’ for the fintech industry in Israel.
- See below in answer to question 14 with respect to the Interim Report in connection with the regulation of the issuance of coins and tokens.
- The Anti-Money Laundering Authority has recently been working to enact the Anti-Money Laundering and Terror Financing Order, which will apply, among others, to entities engaged in providing services relating to cryptocurrencies and advanced payment solutions, as part of the new regulation of this field under the Supervision Law.
In order to encourage Fintech innovation, the JFSA introduced the “Fintech Testing Hub” in September, 2017. The JFSA sets up, on a case-by-case basis, a support team that helps Fintech companies and financial institutions identify and solve potential legal issues and risks associated with new Fintech schemes.
In June, 2018, the headquarters of Japan’s Economic Revitalization of the Cabinet Secretariat opened a cross-governmental one-stop desk for the Regulatory Sandbox Scheme in Japan. The resource, available to Japanese as well as foreign companies, enables applicants (once approved) to carry out, under certain conditions, a demonstration of their projects even if such activities are not yet covered under current laws and regulations and without requiring a legal amendment. Blockchain technology, together with AI, IoT and big data, are explicitly mentioned in the basic policy as prospective and suitable areas.
Sandboxes are considered as part of the Fintech Law; however, general (secondary) provisions applicable to sandboxes must be published during the first quarter of 2019. Article 80 of the Fintech Law, establishes that legal persons, other than Fintech Institutions and other entities supervised by the National Commission for the Pension Saving System and the National Insurance and Bonding Commission and the Bank of Mexico (jointly as the ‘Supervisory Commissions’), must obtain authorization to carry out activities that require sandbox models to operate.
The authorizations referred to in the previous paragraph shall be for a maximum period of two years and shall be subject to review by the Supervisory Commissions. The Fintech Law also provides that financial institutions and other supervised entities, may temporarily carry out operations or activities comprised within their corporate purpose through sandboxes.
British Virgin Islands
Regulatory sandboxes are gaining popularity in most developed financial markets and the BVI Government is currently engaged in discussions across industries and countries to assess how a BVI regulatory sandbox can assist innovators to create more affordable products and services and to foster financial inclusion. The BVI regulator has also recently made a public statement on its commitment to helping financial services firms to innovate through regulatory and financial technology.
In addition to the sandbox, exciting industry proposals are currently before the BVI regulator to expand the horizon of the BVI Financing and Money Services Act, 2009 to allow for P2B (including P2B and B2B) lending platforms to operate from in or within the BVI without the need to obtain a licence.
SSEK: BI and the OJK issued the BI Fintech Reg and OJK Fintech Reg, respectively, to encourage innovation in the financial sector. Both regulations provide for a sandboxing mechanism through which fintech providers can test their products to ensure they fulfil the criteria and requirements for “fintech” and “financial digital innovation” contained in the respective regulations.
We are currently not aware of any such initiatives on the regulators’ behalf. However, we note that the CMVM (the Portuguese Market Securities Commission or CMVM) is actively engaging market players and stakeholders in a recent effort to improve and understand businesses’ concerns and regulatory obstacles currently hindering innovation and new technologies to enter the market.
At the same time, Portugal Fintech has launched an initiative named “Portugal FinLab” which is meant to be a communication channel between innovators and the Portuguese Financial Regulators. Through this channel, the regulators give guidelines to the projects submitted to them. The purpose of the Portugal FinLab is to support the development of projects that are genuinely innovative.
It is the result of a partnership between the regulators Banco de Portugal, CMVM - Portuguese Securities Market Commission, and ASF - Insurance and Pension Funds Supervisory Authority, along with Portugal Fintech.
The OCC has issued the Responsible Innovation Framework in 2016, creating an Office of Innovation for banks and non-banks to consult regarding fintech activities, and promoting inter-agency cooperation.
In the summer of 2018, the U.S. Department of the Treasury released its Report on Nonbank Financials, Fintech, and Innovation that made over 80 recommendations on legislative and administrative action on the fintech sector, including endorsement of the OCC special purpose national banking charter and recommending the establishment of regulatory sandboxes for fintech companies.
The CFTC has created LabCFTC in an effort to promote responsible fintech innovation and competition. The initiative serves as a platform to inform the Commodity Futures Trading Commission about new technologies through engagement with the fintech market participant community.
Additionally, Arizona became the first state to launch a fintech sandbox, which is administered by the state's attorney general. To participate, companies must submit an application explaining its plan to test, monitor and assess its product or service while assuring that consumers are protected in the event the test fails. Individual transactions caps per customer are in effect.
There is a clear mandate across all sectors of government to support and encourage the growth of fintech in the region. The financial sector, particularly in Financial Free Zones, represents a significant industry where innovation is sought, particularly through the authorities’ accelerator programs.
Pursuant to the Board of Directors’ resolution no. 28/R.M of 2018, the Securities and Commodities Authority of the UAE (the “SCA”) approved draft regulations setting out regulatory controls for the FinTech sector in the form of a pilot regulatory environment (sandbox) to enhance and support the financial integrity of fintech companies. The regulations achieve this by relaxing the regulatory requirements or exempting testers from some of these requirements. This testing environment is designed for developers of fintech projects, whether emergent or existing companies or individual projects by entrepreneurs.
The DIFC launched an accelerator programme named the Fintech Hive to encourage cutting-edge fintech solutions for leading financial institutions. The DIFC issued an innovation testing license which permits qualifying fintech firms to develop and test innovative concepts for a period of six to twelve months without being subject to all regulatory requirements that normally apply to regulated firms. If the outcomes detailed in the regulatory test plan are fulfilled and the firm can satisfy DFSA requirements, it may migrate to full authorisation.
The ADGM launched an accelerator programme named the Regulatory Laboratory (“RegLab”) to encourage cutting-edge fintech solutions for leading financial institutions. The ADGM established a financial services permission which permits qualifying fintech firms to develop and test innovative concepts for up to two years without being subject to all regulatory requirements that normally apply to regulated firms. Additionally, the ADGM implemented amendments to the FSMR 2015 to specifically address the emergence of new technologies, namely crypto assets.
The National Bank of Ukraine has announced the creation of the regulatory sandboxes for development of the fintech start-ups. Though as of the date of preparation of this material the sandboxes have not been created yet.
In general, for the last years the National Bank of Ukraine has been actively implementing the reforms of financing activities regulation thereby the currency legislation has been liberalized and the positive changes to the payment regulation and financing monitoring have been implemented. The National Bank of Ukraine is open for the collaboration with fintech companies and ready to assist them in the implementation of their ideas.
Already in 2016, Finma issued a guideline permitting video- and online identification for AML purposes in an account opening process. Finma furthermore adapted an existing circular to make it technology neutral by permitting asset managers to enter into digital asset management agreements (instead of agreements in writing). Finma also established a dedicated helpdesk for fintech questions.
In 2017, the ordinance to the BA was changed: Prior to that revision, banking license requirements were easily triggered, e.g. if a fintech company was deemed to be accepting funds from the public on a commercial basis or if a fintech company lent to borrowers in excess of 500 million Swiss francs (approx. USD500 million) while refinancing itself with more than five banks not associated with the fintech company. Fulfilling all prerequisites of a regular banking license however is unreasonably burdensome for the average fintech company: not only would it have to meet capital requirements of more than 20 million Swiss francs (approx. USD20 million), but it would also have to comply with high corporate governance and regulatory standards. The revision brought two changes:
First, the time-period during which a financial intermediary may hold funds from third parties on its own accounts for the purpose of settling client transactions without being deemed to have accepted funds has been extended from seven days (according to the current practice of Finma) to 60 days. Therefore, if the settlement occurs during this 60 days-period, no banking license needs to be obtained. Crowd-funding platforms may capitalize on this exemption in particular, since it allows to route the funds through the platform. Similar advantages result for payment service providers. However, securities dealers are expressly excluded from invoking aforementioned exemption.
Second, the rule whereby a banking license is required whenever (i) either funds of more than 20 investors are actually held or (ii) the enterprise publicly announces that it is willing to accept such funds (regardless of the actual number of investors) was amended. Holding client funds (of more than 20 investors and for a period longer than 60 days) does now no longer trigger banking licensing requirements (as it is not deemed to be acting "on a commercial basis") if (i) the funds do not exceed one million Swiss francs (approx. USD1 million), (ii) the funds are neither invested nor interest bearing (except in the cases outlined below), and (iii) the depositors have been informed in writing or otherwise in text form prior to making the deposits that the funds are not covered by the Swiss depositors protection regime and that the institution (here: the fintech firm) is not supervised by Finma. In case the person accepting such funds is primarily engaged in commercial/industrial (i.e. not financial) activities and uses the accepted funds to finance such activities, the requirement that the funds must neither be interest bearing nor invested does not apply. The new rule is unofficially termed "sandbox" and aims to give space for developing fintech solutions without their being subjected to (prudential) supervision by the Swiss regulator. In case that aforementioned threshold is being exceeded, the institution must notify Finma within 10 days and file an application for a (regular) banking license within 30 days. Finma may prohibit the institution from accepting additional funds from the public until a banking license is granted, should Finma consider this necessary taking into account market and customer protection.
By 2019, it is furthermore expected that a proposed change of the BA itself will become effective: By this change, Switzerland will introduce a “banking license light”. The amendment to BA was headed “promoting innovation” and set forth, among others, that an entity does not qualify as a bank (even if primarily engaged in the financial sector accepting funds from the public on a commercial basis or publicly offering such services) if such acceptance of funds is limited to the amount of 100 million Swiss francs (approx. USD100 million) and the assets are neither invested nor interest bearing. Instead, the BA shall only apply mutatis mutandis to such entities, potentially going along with lower requirement as regards accounting standards, auditing and depositor protection. Hence, Switzerland has already taken a number of steps to establish a “banking license light” and a sandbox.
Finma as the financial markets regulator was the first supervisory authority to issue guidelines for initial coin offerings (or token generation events, commonly known as ICOs) (see question 14 below).
The Swiss government and industry have furthermore initiated the "digital Switzerland" initiative, bringing together a great number of interested parties to further the ecosystem and the regulatory framework for the digitalization of Switzerland. The already existing and more specialized fintech ecosystem, which by itself comprises a variety of associations, meetups and conferences such as the blockchain taskforce, will also profit from that initiative. In general, it is foreseen that no special laws will be drafted for the Blockchain, distributed ledger or crypto economy, but that existing laws will be revised to render them technology neutral.
The RBI and the Securities Exchange Board of India (SEBI) have set up the Working Group on Fintech and Digital Banking and the Committee on Financial and Regulatory Technologies respectively. These committees have been tasked with assessing the opportunities, risks and challenges presented by the rapid growth of FinTech in India. The RBI’s Working Group, in its report has recognized that there is a need to ‘provide an environment for developing FinTech innovations and testing applications/APIs developed by Banks and FinTech Companies’. Recent media reports also state that the RBI is working on a regulatory sandbox for financial technology.
Against the backdrop of a tightening regulatory landscape in recent years (driven largely by the global financial crisis), UK regulators and policy makers have undertaken a variety of initiatives and projects to understand the implications of technology in financial services. As well as investing in projects through Innovate UK and research councils, the government has carried out a number of calls for information and launched its Digital Strategy – setting out the government’s ambition to make the UK attractive to attracting and growing digital businesses.
At the regulator level, the FCA has established the Innovation Hub and the Regulatory Sandbox to support innovation in the interests of consumers. Through the Regulatory Sandbox (now on its fifth cohort since the end of 2015), a wide range of firms are able to test innovative business models, delivery mechanisms, products and services in the real market, with real consumers in a controlled environment. Firms also have direct access to the FCA’s dedicated teams, providing a level of advice and support around the regulatory regime and onward authorisation if this is required. Similarly, the Bank of England has established a new Fintech Hub to consider the policy implications of fintech. To date this has focused on testing proof of concepts to understand how new technologies are being adopted and why, as a means of informing the Bank’s approach to financial stability and supervising the market.
The government intends to progress its Fintech Sector Strategy into 2019, bringing together HM Treasury, the FCA and the Bank of England, with a view to developing an approach to emerging technology and innovation while maintaining the UK’s international reputation as a safe and transparent place to do business in financial services.
The Dutch financial regulators, DNB and the Authority for the Financial Markets (“AFM”), are supporting fintech innovation and are willing to enter into a constructive dialogue with fintechs wishing to launch innovative financial services and products. As such, they have launched the so-called ‘InnovationHub’, which offers both fintechs and incumbents the opportunity to submit questions about the scope and applicability of regulatory requirements.
DNB and AFM have also launched a regulatory sandbox, which allows fintechs to test their potentially innovative financial services and products in a designated area. The regulatory sandbox is only available for fintechs that come up with an innovative and valuable concept, but are reasonably unable to comply with the applicable regulatory requirements. One of the criteria to apply for the sandbox, is whether the innovative concept has any added value for the financial industry.
In recent years, the Chinese government is paying increasing attention to encouraging innovation in an effort to develop fintech industry. China has introduced a series of regulations and policies to encourage innovation in such area. For instance, the PBOC launched the 13th Five-year Development Plan of China’s Financial & Information Technology Industry in June 27, 2017 (《中国金融业信息技术“十三五”发展规划》, the “Plan”), highlighting five key tasks including the application of new technology and the development of innovation.
The PBOC also established a special committee, the Financial Technology Committee, to undertake research on fintech’s influence in the areas of monetary policy, the financial market, payment and settlement methods and so on. This committee have also been examining a new management model to promote fintech innovation.
“Regulatory sandboxes” have also been introduced by the local government in certain China cities to encourage and accommodate financial innovations. One good example is that, Guiyang, capital city of Southwest China's Guizhou Province was approved as the first pilot city in China to launch “IOC sandbox” plan in 2017.
The FSC has taken several initiatives to encourage the developments of fintechs.
The Financial Technology Development and Innovation Experiment Act ("Fintech Innovation Act") was promulgated on January 31, 2018 and took effect on April 30, 2018. The Fintech Innovation Act aims to establish a secured environment for innovations and experiments in financial technology while protecting financial consumers (the so-called sandbox). The regulatory sandbox allows approved applicants to be exempt from certain laws and regulations during a specific period and within certain scope, and henceforth fosters flexibility for innovative experiments. To date, only three (3) applicants in two (2) projects have successfully entered the fintech sandbox.
The FSC established the first fintech village in Taiwan, “FinTech Space”, jointly with Taiwan Financial Service Roundtable ("TFSR"; the private wing of the FSC), with the aim of fostering developments in the local fintech ecosystem and accelerating innovation. FinTech Space provides programs such as “co-working space”, “entrepreneurship mentoring”, “digital sandbox”, and “global cooperation”. It was reported that 37 teams have been approved to enter into the space, including 6 international start-ups. On December 7 and 8, the forum, “FinTech Taipei 2018”, was held under the instruction of the FSC, in order to demonstrate Taiwan’s potential in the area of fintech developments. Many international speakers were invited to share their insights and experiences and interact with the local players.
To further liberalize the regulations of traditional banking, the FSC has announced new regulations and rules on allowing the establishment of the so-called “Internet only” banks. Many large companies are participating in the contest to win the operation licenses for “Internet only” banks, including ChungHwa Telceom and Line. Meanwhile, the FSC continues its efforts to encourage the use of e-payment tools in the Taiwan market.
In the Malaysian market the regulatory bodies are providing strong support and accelerating fintech growth. Bank Negara Malaysia (“BNM”) seeks to provide a regulatory environment that is conducive for the deployment of fintech. This includes reviewing and adapting regulatory requirements or procedures that may unintentionally inhibit innovation or render them non-viable. As part of this process, the Financial Technology Regulatory Sandbox Framework (“BNM Framework”) is introduced in 2016 to enable innovation of fintech to be deployed and tested in a live environment, within specified parameters and timeframes. The BNM Framework also is to enable the experimentation of fintech solution in a live environment, subject to appropriate safeguards and regulatory requirements. BNM has demonstrated its desire to grow and encourage the industry by approving several firms to operate within BNM Framework.
The Securities Commission of Malaysia (“SC”), which regulates the Malaysian capital markets, has adopted a digital markets strategy intended to enhance access to financing, increase investor participation, augment the institutional market and develop synergistic ecosystems for the capital markets in Malaysia. Stockbroking, provision of investment advice, financial planning, dealing in derivatives and advising on corporate finance are among the activities regulated by the SC under the Capital Market Services Act 2007 (“CMSA”).
In 2015, the SC launched the ‘Alliance of FinTech Community’ (“aFINity@SC”). This is an initiative facilitated by the SC to catalyse greater interest towards the development of emerging technology-driven innovations in financial services, whether existing or prospectively developing in Malaysia. aFINity@SC is about forming a network of community engagements among relevant FinTech stakeholders towards spurring more FinTech-focused innovation. The SC will work together with relevant fintech-related stakeholders including innovators, entrepreneurs, established businesses, investors and other authorities, as part of a concerted effort to accelerate growth and innovation in the financial market.
In addition, as part of SC’s effort to nurture and facilitate market-based innovation in fintech under the aFINity@SC initiative, the regulatory framework for equity crowdfunding (“ECF”) was introduced in February 2015. The SC has approved a number of crowdfunding platforms through which individuals can invest their money. For examples, FundedByMe (Alix Global), Ata Plus, Crowdonomic, Eureeca, pitchIN and Crowdplus. Continuing on the initiatives, SC has introduced the regulatory framework for peer to peer (“P2P”), setting out requirements for the registration and obligations of a P2P operator as provided in the revised Guidelines on Recognized Markets in May 2016 (Revised further in January 2019). The P2P framework will enable eligible businesses and companies to access market-based financing to fund their projects or businesses via an electronic platform.
Additionally, the Financial Technology Enabler Group (“FTEG”) was established by BNM in June 2016 to support innovations that will improve the quality, efficiency and accessibility of financial services in Malaysia. Comprising of cross functional group within BNM, the FTEG is responsible for formulating and enhancing regulatory policies to facilitate the adoption of technological innovations in the Malaysian financial services industry. The FTEG has also launched a fintech regulatory sandbox, a live regulatory environment where fintech products can be deployed and tested within specified parameters and timeframes. The idea behind the sandbox is to ensure that FTEG can catch regulatory and compliance policies that may inhibit innovation in the financial service sector, by looking at how fintech start-ups operate and what using their products entail.
With this active government support, Malaysia’s fintech ecosystem is on the fast track for growth and development.