One of the more interesting trends in fintech is the increasing accommodation and coordination of innovation hubs. Hong Kong and Dubai authorities, for example, have inked deals providing for cooperation on the development of financial technology, along with the Monetary Authority of Singapore, Abu Dhabi Global Market and Australia’s regulator.
At first blush, greater coordination could seem a bit surprising, especially since one of the major goals of a fintech hub is to attract talent to a country to develop or kick-start its financial services industry. But fintech services, like financial services more generally, invariably evolve to take on cross border features and new markets. But to be exported, coordination will be required, especially since fintech so rarely fits into conventional regulatory categories in one country, much less two.
How hubs go about this coordination process will be almost as important as coordination among domestic agencies. At this point, the drivers behind coordination appear to be matter of market access. Indeed, in the Hong Kong agreement, a “referral mechanism” is the first operative provision of the accord, whereby regulatory agencies would refer to one another entities seeking to operate overseas. No explicit mention is made of typical regulatory concerns like investor protection and financial stability.
Yet it’s not hard to imagine that as fintech becomes more embedded in financial systems, and systemically important, coordination will take on a greater supervisory character. As regulators experiment with new tools to supervise fintech firms, some homologues will invariably (and rightly) demand information about what kind of testing and risk analysis of new or innovative products and services has been undertaken of firms seeking to do business in their borders. And market participants should welcome such a development. As the 2008 financial crisis illustrated in painful detail, the failure of a country to regulate financial services peddled across-borders holds the prospect of not only contagion, but also obliterating the trust necessary for international cooperation in the first place. The fintech community would be wise to not squander the goodwill it currently enjoys.