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Regulation: You say tomato, I say tomahto

It is crystal clear that Financial Technology is here to stay and that, in many ways, the sector will form the crucible of innovation for the financial landscape of tomorrow. The energy and spirit of invention, emerging from companies and individuals, will shape and change the way we work and serve our customers.

Traditionally, I think it is reasonable to say, we have always seen the source of such creativity as being in North America and in particular, places like Silicon Valley and New York. But while we can certainly look at the US as the birthplace of iconic organisations like IBM, Microsoft and Apple, we cannot assume that the world of FinTech will owe its future to this part of the world.

One of the reasons behind that thinking is the different approaches to regulation. There was an important development a short while ago in the UK when Prime Minister Cameron got behind a five-year plan which aims to aggressively drive investment in the sector, not just to create jobs but also to position the UK as a leader in Financial Technology.

Obviously, to ensure that the UK can facilitate such an initiative, regulation needs to be simpatico. The environment has to be fluid and flexible enough to allow enterprise to flourish. In the UK, despite the waves of regulation in progress at present, there seems to be enough margin for movement to allow that. In the US, at present, there is a growing feeling that regulation is choking certain elements of the renowned American spirit of entrepreneurship.

The US government, back in the 1930s, embarked on a regulatory regime that was heavily governed by rules, designed to protect people from over-investment. It’s pretty much the same today.

There are, perhaps, good reasons for that. We are still too close to the disaster of 2008-09 for people to be totally relaxed about loosening the reins, indeed the world is still a fragile place and too vulnerable to shocks. But you have to go back to 1929 to understand the psyche of regulation and its behavioural response to crisis. The US government, back in the 1930s, embarked on a regulatory regime that was heavily governed by rules, designed to protect people from over-investment. It’s pretty much the same today. In Britain, by contrast, they implemented a relatively self-governing system that remained in place until the 1990s when the Financial Services & Markets Act came in. This was designed to be flexible enough to adapt to market change and, unlike the US “rule book”, was more based on principles. The UK allowed discretion to come into play.

Effectively, the UK attitude to regulation is now being seen as more receptive to growth. That said, this does not mean that “anything goes”, because the current regulator, The Financial Conduct Authority (FCA) has to approve and sign-off on any new model. Increasingly, people are starting to call for a simpler and more lubricating process to be introduced in the US, especially as new ways of financing, such as equity crowdfunding – so important given traditional funding sources are in shorter supply these days – are coming up against multiple hurdles.

There is an important consideration here, too. Global business is highly interconnected and therefore, regulation also needs to be aligned to ensure balanced competitiveness.

In no way should we look for short cuts that might compromise safety and security – it is in all of our best interests to ensure that the financial world becomes safer, more stable and robust enough to withstand the slings and arrows of market turbulence. But should we not expect legislation and regulation to keep [better] pace with the inventiveness that will help power future global growth?

#Compliance #Regulation #fintech #UK #US #FCA

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