GLOBAL regulation of alternative finance – including peer-to-peer lending, equity crowdfunding, and initial coin offerings (ICO) – will increase “significantly” over the next two years, a new study has revealed.
A report by the World Bank and the Cambridge Centre for Alternative Finance (CCA) at Cambridge Judge Business School found that by mid-2021, approximately 68 per cent of the 111 regulatory jurisdictions surveyed will be regulating equity crowdfunding – up from 39 per cent by mid-2019. Meanwhile, 43 per cent will regulate P2P lending – up from 22 per cent – and 37 per cent will regulate ICOs – up from 22 per cent this year.
The report, titled Regulating Alternative Finance – Results from a Global Regulator Survey, found that while alternative finance is still typically unregulated, especially in lower-income countries, bespoke regulation is catching on. The authors added that where regulation is in place, it was hardly ever delivered in a ‘light touch’ manner.
“There is little evidence yet of regulators purposefully creating light-touch regulatory frameworks for alternative finance,” said the report. “If anything, purpose-built regulatory frameworks tend to have more obligations in place than pre-existing ones.”
According to the findings of the report, just 22 per cent of global jurisdictions formally regulate P2P lending, with a further 12 per cent opting for bespoke P2P lending rules.
However, there is evidence that the potential of alternative finance will lead to a regulatory boom.
“Policymakers globally are keen to explore the promise of alternative finance,” read the report. “A clear majority are optimistic about its potential to improve [business’] and consumers’ access to finance (79 per cent and 65 per cent respectively) and stimulate competition in financial services (68 per cent).
“While regulation is not the norm today, by mid-2021 most jurisdictions will be regulating equity crowdfunding and more than a third intend to regulate P2P lending and ICOs; bespoke frameworks will likely become even more common.”
The report also found that regulatory benchmarking is the key driver of global regulatory change with more than 90 per cent of regulators referring to lessons learned from other jurisdictions when setting their own policies.
However, 77 per cent of global regulators said that they would like to receive more support from development banks, other regulatory bodies, and associations of financial regulations.
Unsurprisingly, regulatory standards for alternative finance have made slower progress in emerging markets, with lower-income jurisdictions between three and four times less likely than high income ones to already regulate alternative finance activities.
The regulators who were surveyed suggested that lower-income jurisdictions could benefit from initiatives such as the establishment of innovation offices.
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