Leading up to Fox’s comments, Adam Jackson, director of policy, Innovate Finance, suggests that fintechs are potentially about to deal with a ‘regulatory decade’, asking whether it is likely we will see a messy proliferation of different national regulations.

“The idea fills me with horror,” responds Dr Kay Swinburne, vice chair, KPMG, “because I thought that started in 2008. We need a break to bed these things down and work on where they’re going!”
Swinburne explains that financial services is one of the few sectors which has had truly global coordination. It is one of the “poster children” of enhanced cooperation in the space, seen most clearly with the close cooperation of prudential bodies.

“Even post financial crisis, we saw very close cooperation across borders, and seems to come quite naturally in this space. When people say the era of globalisation has ended, I wonder whether that’s true of financial services […] There is merit in doing things collectively.”

While Swinburne is convinced that “we can regulate and supervise collectively and globally in the new digitised world,” she warns that we are still looking at things through an old lens, for instance tweaking regulation rather than looking at the issues wholesale.

Swinburne continues that there are very few fintechs that have a national identity or would want to remain national, “the vast majority see the world as their market. Why would we limit that when the new technology should allow that to be much more simple?”

Mitch Trehan, UK head of compliance and MLRO, Banking Circle, echoes the concerns raised by Swinburne, stating that while there is a lot of collaboration between regulators, “it only goes so far.”

This is largely because every country has a different agenda with regard to how much funding they allocate toward financial services authorisation regulation.

Francesca Porter, general counsel, Onfido, underscores the point, and notes that discrepancies between national approaches can have extensive ramifications on operational factors – particularly with regard to data use.

“Trying to comply with all these different regimes when you actually have data flows going all over the world, possibly to support global businesses means that sometimes you have to build out your entire data infrastructure in two different places, as well as having those teams doing the same thing.”

Porter adds that from a machine learning perspective, for example, as some countries have data deletion requirements, if a global company is leveraging machine learning from that data which then has to be deleted, there is a high risk of algorithmic bias and discrimination.

Following on from the concerns raised by panellists, Fox explains that such challenges are shaping the regulator’s approach to supervising this new world.

“Increasingly, when we look to regulate the newer digitised and disintermediated forms of finance, we no longer have a practical choice to just put up the drawbridge nationally and regulate it that way.”

Crypto is a good example of this, and Fox observes that even if the UK wished to regulate it independently, it’s simply not feasible anymore.

“So we've put an awful lot of time, effort, thought into our international collaboration, most of that starts globally at the level of policy.”

Fox continues to say that it was heartening to hear members of the panel call for policy to move from rules based, to principles based, to outcome based, “because that is something we’re really attracted to at the FCA.”

“I think at the level of policy, the way to do that is to agree the basic principles, have those set at the highest level, have them become the watermark, the hallmark, the client-mark, for quality, and then leave those to be implemented nationally.”

While Fox would love to have a truly global approach, the reality is that laws will always have to be set at a national level, supervisors will always be shaped by the culture and history of what has gone wrong in their jurisdiction.

“In short, we give it a hell of a lot of time and effort. But it is a difficult trick to pull off, and some national differences are inevitable.”

Providing context on the subject ahead of IFGS, Arunan Tharmarajah, head of European banking at Wise revealed: “When it comes to regulation, fintech companies working globally face many challenges. While the world is operating on a bigger more global scale than ever before, regulation still lacks cohesion […] Regulation is vital to make sure money is being kept safe and that all banks and financial institutions in a particular country are working in a unified way to protect customer’s money, and prevent crime. But there is potential for the current regulatory process to be improved. For example, ‘equivalent licences’ that apply to more than one country could help prevent work being repeated across markets, and encourage fintechs to think (and ultimately grow) globally, quicker.

“It’s just one of the ways we can help make regulation work smarter, not only for companies who are growing globally, but for their customers who can benefit from a better service. For technology companies, innovations happen simultaneously across several markets, so it’s important that legislation takes this into account. In the long term, better cross border collaboration could actually have a much bigger impact on growth than things like funding. The current model of domestic focused regulators can often be at odds with global issues, and creating a better global standard could hugely accelerate the impact fintech companies can have across the world.”

Ahead of IFGS, founder and CEO at Cube, Ben Richmond, told Finextra: ‘Emerging fintechs have remained relatively unscathed by the regulatory requirements faced by traditional institutions. But the industry is evolving at rapid speed, and as consumers become more reliant and indeed more involved in the industry, tighter regulation and compliance isn’t far behind. If regulators can’t find the right balance between protecting consumers and encouraging innovation, the rising tide of regulations will hinder industry progress and wider market competition. Fintechs will need to ensure they’re providing already overstretched compliance teams with the resources needed to tread through a new regulatory environment.

“If the industry is to successfully manage the imminent regulatory crackdown, fintechs need to get serious about compliance. This isn’t about adding manpower to the equation – the volume and velocity of regulatory change is difficult to manage with humans alone. Instead, if fintechs want to streamline their processes and have compliance systems that withstand regulatory scrutiny, they must do what they do best – embrace new technology. Failure to see the true value of regtech could leave firms with gaps in their compliance frameworks, and set firms up for regulatory and reputational damage.

“The industry is shifting, and the lines between fintechs and large financial firms are beginning to blur. Disruptive fintechs now offer a suite of services typically associated with their more traditional counterparts – and in some instances offer a competitive alternative. The implication here is that, more than ever, fintechs are becoming a fundamental part of consumers lives – prompting close scrutiny from regulators in a bid to protect the end-user. The thriving buy now, pay later sector is a prime example – just as the industry tripled in value, regulators have understandably closed in.

"No doubt other sectors of the industry will face a similar trajectory, as more fintechs challenge the current status quo to reach new heights, and consumers become more vulnerable in the eyes of regulators.”