Asset managers see fintech as a leading source of opportunity and critical to sustained performance.
Fintech innovations present opportunities for business transformation and greater efficiency in executing transactions.
However, fintech has increasingly caught the eyes of regulators worldwide.
While regulatory bodies acknowledge that innovation is beneficial and attempt to provide some scope for “regulatory sandboxes” that permit more experimentation, regulators also show (often well-placed) concern that fintech can amplify fraud and security risks.
Are regulations keeping up with innovation?
The regulations we live with today were written under the assumption that business happened in person. Parties signed contracts on paper.
However, the rise of digital has caused a massive change in most countries (certainly every major financial center).
Regulators must now attempt to catch up with how innovation has changed the business landscape.
While current fintech innovations widely in use may not pose risks to financial stability now, the technology already under discussion may pose systemic risk. There is also, of course, the possibility that they may pose risks regulators cannot anticipate.
Consequently, regulators may need to rethink what norms and regulations should be in an era when most business transactions occur digitally.
The areas regulators are particularly concerned about are:
- Cybersecurity
- Robo-advice
- Distributed ledger technology (including blockchain)
- Crowdfunding
- Applications of AI and Big Data
How should asset managers incorporate fintech innovations into their business processes?
While continuing to do business in a pre-digital fashion may not be an option, asset managers must acknowledge the role regulation of fintech will likely play in the future.
