Financial innovation and new products such as peer-to-peer loans are creating challenges for regulators, a global report on financial innovation has found.
The report, produced by the International Banking Federation (IBFed) and global management consulting firm Oliver Wyman, explored how regulation protects consumers whilst allowing for innovation and competition.
“New products such as P2P loans; new operations such as AI and the cloud; new players
like fintechs, big techs, and telecoms; and growing cross-sector and cross-border businesses are
again testing the boundaries of regulatory frameworks and regulators’ speed of response,” the report said.
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The report also noted that fintechs’ products and delivery mechanisms may fall outside the scope of existing financial regulations.
“This may be because they resemble existing financial services but are not yet fully classified as such within the existing regulatory framework,” the report said. “Or it may be because some regulation is entity-based, making it unclear which requirements apply if the entity providing them has a different license than that traditionally used to perform that activity.
“For example, is P2P lending actual “lending” or just intermediating payment transactions?”
The research highlighted a disparity in the regulation of bank and non-bank players, when it comes to classifying products and services; assessing accountability; and differences in monitoring and enforcement.
“People argue there wasn’t any regulation for P2P when it first came in, which wasn’t true,” said Andrew Holgate, chief executive of fintech consultancy Equitivo, commenting on the report’s findings.
“In some ways, there was lots of regulation, it was just unclear where exactly P2P fitted into it. There was banking legislation and anti-money laundering and consumer protection legislation all in place.
“Fintech and P2P lending platforms have just found more efficient ways of delivering products and regulators were initially too slow to realise the expansion of products.
“They are now more on top of it and doing more to make sure these products are safe and delivered in the right way.”
The report recommended revising measures within financial regulation and strengthening the policy response on issues that cut across industries.
It also called for the extension of finance-specific regulations to other industries where there are now inconsistencies in regulation and its enforcement.