While money travels online in a split of a second, passing borders in a wink of an eye, the search and need for financial regulatory laws and contracts are one big challenge, common standards to reach harmonization a must. Lea Hungerbühler shares her thoughts in the following forausBlog.
Bitcoin, Twint or Crowdfunding – these are the hot topics in banking and finance these days. FinTech stands at the intersection of finance and technology, or, to put it differently, it is technology used to enable banking or financial services. By offering services online, digitally or virtually, FinTech has the potential to drastically transform and disrupt the way financial services are being provided today. Without any physical material (e.g. cash) or presence (e.g. bank counter), these technologies increase consumer choice, reduce prices by decreasing margins, spur innovation and facilitate access to financial services.
While technologies are constantly emerging, legislators are trying to keep pace with these developments, which turns out to be a huge challenge. The simple fact that no physical presence is needed (nor wanted) to provide financial services is totally new to our regulatory regimes. Traditional banking regulation, as well as recent regulatory amendments, fail to address this topic appropriately. Since the perspective of lawmakers is mostly national, even new laws and regulations stop at the borders and neither inbound nor outbound FinTech services are duly considered. These purely national legal provisions hinder the cross-border expansion of FinTech companies and therefore prevent real consumer choice and financial inclusion beyond borders. Especially the lack of legal security about whether the home or host financial regulation applies renders FinTech companies reluctant to provide their services in a foreign country.
The cross-border provision of financial services is highly relevant for any financial intermediary. However, it is of elevated interest for FinTech companies since they do in fact (and by definition) not need any physical presence to provide their services. Furthermore, FinTech companies generally work with rather low margins. To make use of economies of scale, they are reliant on a broad, global client base. This is particularly true for those FinTech companies located in rather small countries, such as Switzerland.
As a consequence, a purely domestic view on FinTech regulation will not be sufficient in the long run. Therefore, also a national sandbox, as the lightly regulated «playground» for FinTech companies is called, will not be enough. We must come up with new, creative ways to regulate this emerging field of financial services wisely. International standards could contribute to global harmonization and facilitate market access without unduly increasing the regulatory burden. Such harmonization has already taken place within the European Union, where financial intermediaries located in an EU member state can provide their service all over the Union (so called «passporting»). In any event, a new approach to regulatory developments is required to deal with and promote FinTech, since national answers to international phenomena are insufficient. While national sandboxes are a nice starting point, we need to look beyond their edges to provide a regulatory framework which is truly FinTech friendly.
Lea Hungerbühler ist Rechtsanwältin im Bereich Finanzmarktregulierung und Co-Leiterin des Programms Finanzplatz bei foraus.