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2023 | Book

Fintech Regulation and Supervision Challenges within the Banking Industry

A Comparative Study within the G-20

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About this book

Strengthening financial sector regulatory arrangements has been a major focus of the G-20 since the crisis in 2008, and progress in strengthening financial regulations is often cited as its success. Nonetheless, the overall contribution of the G20 as a political forum for the oversight of international financial regulation is diming as FinTech is blurring the boundaries between intermediaries and markets, as well as between digital service providers moving into the financial space, nonbank financial companies, and banks. Along the same line, financial technology is causing paradigm changes to the traditional financial system, presenting both challenges and opportunities. As FinTech grows rapidly, the importance of regulation and supervision becomes more prominent. The three cornerstones of banking: taking deposits, making loans, and facilitating payments are being reassembled functionally and digitally outside of the bank regulatory perimeter by certain firms. Without comprehensive consolidated supervision, no single regulator can see the whole picture and understand how a firm as a whole operates and takes risk. No crypto firm to date is subject to comprehensive consolidated supervision, creating gaps in supervision alongside risks. Countries around the world are taking divergent views on cryptocurrency and other so-called “Web3” technologies based on blockchain. This book aims to provide a comparison between the various available approaches, models, or legislations by identifying certain key legislative policies within the G-20 as they cope with innovative financial technologies, and will be of interest to scholars, students, and practitioners of banking, financial regulation, risk management, and financial technology.

Table of Contents

Frontmatter
Chapter 1. Banking Regulation and Fintech Challenges
Abstract
Technological innovation, after all, tends to outpace regulatory change. Some countries have strong enabling regulations for fintech and digital financial services. Others simply lack the necessary regulatory infrastructure. Fintech developments present issues that are beyond the traditional scope of financial authorities, and the speed of innovation makes it difficult for regulators to respond in a timely manner. One of the main challenges for authorities is to have sufficient resources and expertise to keep up with the speed of technological change, to understand novel business models, and to develop adequate policy responses.
Felix I. Lessambo
Chapter 2. International Standard Setting Boards
Abstract
Several international bodies, including the Financial Stability Institute (FSI), the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors (IAIS), the International Organization of Securities Commissions (IOSC), the International Association of Deposit Insurers (IADI), the Committee on Payments and Market Infrastructure (CPMI), and the Financial Action Task Force on Money Laundering (FATF) contribute in the development of Fintech regulatory framework.
Felix I. Lessambo
Chapter 3. FinTech Regulations and Supervision in the United States
Abstract
Fintech businesses are not subject to any fintech-specific regulatory framework by any single federal or state regulator. Rather, depending on the activities performed, a fintech company may be subject to a myriad of federal and state licensing or registration requirements and, thereby, also subject to laws and regulations at both the federal and state levels. The Office of the Comptroller of the Currency (OCC), the primary federal bank regulator for national banks, announced in July 2018 that it would begin accepting special purpose national bank charter applications from fintech companies that receive deposits, paychecks, or lend money.
Felix I. Lessambo
Chapter 4. The European Banking Authority
Abstract
The EBA is tasked with monitoring new and existing financial activities, and market developments in the areas of its competence. It may adopt guidelines and recommendations or provide advice to the European Parliament, the Council, and the Commission, with a view to promoting the safety and soundness of markets and convergence of regulatory and supervisory practices and to achieving a coordinated approach to the regulatory and supervisory treatment of new or innovative financial activities.
Felix I. Lessambo
Chapter 5. The Deutsche Bundesbank
Abstract
The task of banking supervision is shared by the Federal Financial Supervisory Authority (BaFin) and the Deutsche Bundesbank. The Bundesbank has the task of continuously monitoring the roughly 1,680 credit institutions, 1,300 financial services institutions, and 100 payment institutions and e-money institutions active throughout Germany, in particular with regard to their solvency and liquidity. Fintech companies are subject to the same provisions as traditional companies in the financial services sector.
Felix I. Lessambo
Chapter 6. The Bank of France
Abstract
French financial institutions are regulated by both the AMF and the ACPR (which is the regulatory arm of the French Central Bank). The regulation to which a Fintech company may be subject to depends on its activities. There are no regulatory sandboxes in France. Nonetheless, a few private hubs for FinTech and public initiatives tend to promote innovation. Within the AMF, the ACPR-FinTech Innovation Unit leads the FinTech Forum, which gathers together professionals several times a year, in order to discuss regulatory and supervisory subjects related to Fintech and innovation.
Felix I. Lessambo
Chapter 7. The Bank of Italy (Banca d’Italia)
Abstract
The Bank of Italy is the lead supervisory authority in the banking and financial services sector. It shares some of its supervisory functions with the National Commission for Companies and the Stock Exchange (CONSOB), which provides investor protection and supervises the Italian securities market. Decree 100/2021 issued by the Ministry of Economy and Finance, implementing the delegated act envisaged under Decree Law 34/2019 (“Growth Decree”), sets out the FinTech Committee rules and experimentation. The Bank of Italy has created a Fintech Channel as the point of contact through which operators can dialogue easily and informally with it.
Felix I. Lessambo
Chapter 8. The Central Bank of Spain (Banco de España)
Abstract
Spain is among the most energetic fintech environments in all of Europe, which translates to one of the most active in the world. The regulator in charge of supervision of fintech businesses is the Spanish Securities Market Commission (“CNMV”), together with the Bank of Spain, and the DGSFP, depending on the type of entity intending to provide services in Spain and the exact nature of those services. The CNMV created an “innovation hub” under the name of “Portal Fintech” to provide support to developers and financial institutions on regulatory aspects of securities markets that might affect their projects.
Felix I. Lessambo
Chapter 9. The Prudential Regulation Authority
Abstract
The UK financial regulators and policymakers are very receptive to FinTech. FinTech firms, which carry on certain regulated activities, fall within the ambit of the regulatory bodies, unless an exemption applies, and need to be authorized and regulated by one or more regulatory bodies. The BoE launched a Fintech Accelerator in June 2016 to help it harness Fintech innovations for central banking purposes.
Felix I. Lessambo
Chapter 10. China Banking Insurance Regulatory Commission
Abstract
Financial supervision in China is conducted according to the laws and regulations in force. In December 2019, the PBOC approved the Beijing Fintech Innovation Regulatory Trial, allowing financial institutions holding appropriate licenses to launch trial fintech programs in real-world markets under close regulatory supervision. Licensing requirements vary slightly depending on the geographic coverage of the business.
Felix I. Lessambo
Chapter 11. The Reserve Bank of India
Abstract
The digital payments market in India is estimated to reach the USD1 trillion mark by 2023. Nonetheless, there is no single set of regulations or guidelines, which uniformly govern FinTech products in India. While FinTech is making good progress, particularly the digital payments and lending space, the same is not true for cryptocurrency, where there has been considerable regulatory resistance. There is no regulation or any ban on the use of cryptocurrencies in the country. The central bank, in its circular dated April 6, 2018, had prohibited banks from dealing in cryptocurrencies or offering any service to customers on them.
Felix I. Lessambo
Chapter 12. The Bank of “South” Korea
Abstract
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) are the major regulatory authorities in the FinTech industry. The FSC is the government regulatory authority, which assumes primary responsibility for rulemaking and licensing. The most important policy introduced to spur the development of the fourth industrial revolution and new growth industries such as fintech is the Regulatory Sandbox Program, which came into effect on April 1, 2019. Cryptocurrency ICOs are still banned because of multiple cases of fraud, but there are signs that new regulation may be under way that will boost innovation, while providing security in the field.
Felix I. Lessambo
Chapter 13. Indonesia Bank
Abstract
Originally, the supervision and regulation of the Indonesian banking industry were performed by Bank Indonesia. However, after the enactment of Law No. 21 of 2011 on the FSA (FSA Law), the authority to supervise and regulate the Indonesian banking industry (other than monetary policy) was transferred to the FSA. Fintech providers are given one year to pilot their innovation over a limited period and receive assessments whether they are permitted to fully operate on a larger scale.
Felix I. Lessambo
Chapter 14. Bank of Canada
Abstract
The Canadian financial regulatory system is fragmented with oversight of various parts of the financial system divided among a variety of federal and provincial regulators. The three principal federal regulators of financial institutions are the Office of the Superintendent of Financial Services (“OSFI”); the Canadian Deposit Insurance Corporation (“CDIC”); and the Financial Consumer Agency of Canada (“FCAC”). Firms with innovative business models are invited to contact their local securities regulator to discuss the firm’s business model and applicable securities law issues. In 2014, Canada became the first nation to establish laws addressing cryptocurrency by amending the Proceeds of Crime and Terrorist Financing Act (PCA) to cover all persons or entities dealing in cryptocurrencies.
Felix I. Lessambo
Chapter 15. The Australian Prudential Regulation Authority
Abstract
The Australian Prudential Regulation Authority (APRA) is receptive to the entrance of fintechs and technology-focused businesses. The Australian Securities and Investments Commission (ASIC) operates an Innovation Hub that assists FinTech start-ups developing innovative financial products or services to navigate Australia’s regulatory system. Any eligible Fintech company was required to notify ASIC of its intention to offer products and services within the sandbox rules. There are no laws in Australia that have been implemented to specifically regulate cryptocurrencies or crypto assets.
Felix I. Lessambo
Chapter 16. The Swiss National Bank
Abstract
The Swiss regime is known as a dual supervisory system in the banking regulation, while the SNB being responsible monetary policy and the overall stability of the financial system, and the Swiss Financial Market Supervisory Authority (“FINMA”), the supervisory authority for banks, securities dealers, and other financial institutions such as collective investment schemes and insurance undertakings. The Swiss regulatory framework is continuously being adjusted to address the needs of Fintech providers and to create a suitable environment for applications of distributed ledger technology (“DLT”).
Felix I. Lessambo
Chapter 17. The Central Bank of Russia
Abstract
In Russia, technical innovations affect virtually all banking products and activities. However, the competition from non-banks is less severe than in AEs since big banks are developing their own digital services, implementing new instruments and platform solutions, and improving their business processes. The CBR has recently introduced the sandbox regulation. The Bank of Russia’s regulatory sandbox is a mechanism for piloting and modeling processes of new financial services and technologies, which require changes in legal regulation, in an isolated environment.
Felix I. Lessambo
Chapter 18. Brazil Central Bank
Abstract
The Central Bank of Brazil regulates financial institutions, money, credit, payments, and exchanges, in accordance with guidelines issued by the Conselho Monetário Nacional (CMN). Oversight on compliance with regulations applicable to Fintech companies is conducted by the Central Bank of Brazil (CBB), the National Monetary Council (NMC), the Transferable Securities Council (TSC), the Federal Reserve Authority, and the National Data Protection Authority of Data (NDPA). The first regulation of Fintech companies in Brazil was enacted under Law 12,865, of 2013, which created the Brazilian Payment System (SPB) that comprises two Fintech categories: payment arrangement institutions and payment institutions.
Felix I. Lessambo
Chapter 19. Central Bank of Argentina
Abstract
The banking industry is subject to strict regulations and controls, mainly provided by the Financial Institutions Law (FIL), which has been regulating banking activities in Argentina since 1977. In April 2022, Argentina launched its fintech innovation hub, a first step toward issuing cryptocurrency and fintech regulation at a later stage. In November 2021, the Central Bank established a regulatory regime for peer-to-peer crowdlending platforms, which entered into force on January 3, 2022.
Felix I. Lessambo
Chapter 20. Central Bank of Mexico
Abstract
The Mexican government published the “Law to Regulate Financial Technology Institutions” or “FinTech Law” on March 9, 2018, which was reformed on May 20, 2021. The Fintech Law mainly regulates the rendering of financial services through technological platforms and innovative instruments, such as crowdfunding, electronic payment mechanisms, cryptocurrencies, and a regulatory sandbox for innovative technologies in the financial sector. Mexico’s central bank has been reluctant to approve use of crypto and banned banks from taking crypto deposits. However, Mexico’s Law to Regulate Financial Technology Companies, enacted in March 2018, includes a chapter on operations with “virtual assets,” commonly known as cryptocurrencies.
Felix I. Lessambo
Chapter 21. The Saudi Arabia Monetary Authority
Abstract
The Saudi Central Bank and the Capital Market Authority (“CMA”) established Fintech Saudi as part of the Financial Services Development Program. In 2018, SAMA launched Fintech Saudi and the establishment of the regulatory sandbox for experimental permits to carry out fintech activities. In 2020, SAMA approved the introduction of new laws governing the fintech sector, notably debt-based crowdfunding and payment service provider (PSP) activities.
Felix I. Lessambo
Chapter 22. The Central Bank of Turkey
Abstract
Fintech industry has been attracting lots of attention from market players and regulators. FinTech has been a key innovator for payment systems and money collection and transfer (including pre-paid cards, digital wallets, etc. Regulators strive to safeguard a fair and level playfield for all market participants along with the Finance Office, which has communicated plans, which aim to encourage investments in the sector. There is no specific legislation regarding the use and application of FinTech on marketplace lending activities. Blockchain-related activities and cryptocurrency-related transactions are currently not regulated under Turkish law.
Felix I. Lessambo
Chapter 23. The South African Reserve Bank (SARB)
Abstract
In 2016, SARB and other financial regulators in South Africa launched the Intergovernmental Fintech Working Group (IFWG) Innovation Hub to respond to the fintech-driven changes in the financial sector and to promote responsible innovation in the sector. Crowdfunding is not specifically regulated in South Africa. However, crowdfunding activities may be subject to existing regulation under South Africa’s general financial services regulatory frameworks.
Felix I. Lessambo
Chapter 24. Sandbox and Innovation Test Bed Case Study
Abstract
Sandboxes are typically employed in cases where the emerging technology is potentially disruptive. It allows the testing of innovative technologies and business models that are not fully compliant with current rules and regulations, by providing temporary suspension of certain mandatory provisions or requirements for those who participate in the sandbox. The Regulatory Sandbox does therefore provide participants with regulatory clarity for innovations that do not neatly fit within existing frameworks and access to funding.
Felix I. Lessambo
Backmatter
Metadata
Title
Fintech Regulation and Supervision Challenges within the Banking Industry
Author
Felix I. Lessambo
Copyright Year
2023
Electronic ISBN
978-3-031-25428-4
Print ISBN
978-3-031-25427-7
DOI
https://doi.org/10.1007/978-3-031-25428-4