Sibos Day 2: Regulators like fintech now

There has been a shift in attitude in the financial services. With the introduction of regulatory sandboxes, regulators can keep a closer eye on what fintech startups are up to, but also provides the new players with a safe place to experiment and test out their products before they go out to market without the …

by | September 28, 2016 | bobsguide

There has been a shift in attitude in the financial services. With the introduction of regulatory sandboxes, regulators can keep a closer eye on what fintech startups are up to, but also provides the new players with a safe place to experiment and test out their products before they go out to market without the burden of compliance from naissance. This could be a game changer for the financial sector as startups are getting the support that they very much need with these initiatives that stimulate change, instead of hindering innovation.

In the When RegTech meets FinTech: the day after tomorrow – How Technology Disruption intersects with Regulation in Securities session, Fabian Vandenreydt, Global Head of Securities and Innotribe at SWIFT, highlighted that we are at a crossroads for disruption and it is important to assemble all the stakeholders of innovation who will be responsible for making the future happen. As part of the Project Innovate initiative, the FCA opened its regulatory sandbox to applications from companies in order to provide a “safe place.

Globalisation of sandboxes

The underlying reason for this flexibility in regulation is to support young companies with a tailored authorisation process and Tracey McDermott, Acting Chief Executive at the FCA, highlighted that this is vital. “Our aspiration is that the sandbox not only enables innovative ideas to be tested and brought to market, but also helps to reduce the time and the cost of getting them there.” Other countries are following the UK in this venture and David Geale, Director of Policy at the Financial Conduct Authority stated that the regulator has an objective of making markets work well in order to promote competition for the consumer. “Sandboxes also bring challenge and positive adoption but finding the right balance is critical,” Geale said.

Chief Innovation and Digital Officer at BNP Paribas Securities Services, Phillipe Ruault explores how we should “distinguish between innovation and invention”. He spoke about how his organisation leveraged high speed hardware with a small team with a lot of freedom in order to ensure that the software becomes a viable product. The panel explained how in order for fintech to work, collaboration is needed between financial institutions, technology firms, accelerators and innovation labs. David Rutter, CEO of R3 explored how his organisation also provides a safe place for applications to be built for financial institutions. “Our lab is ridiculously active for a company of our size,” Rutter said.

Blockchain and the mobile phone network

According to Peter Randall, CEO of SETL, by the 90’s the financial industry was able to provide customer services at lower cost. “This is an important piece to the journey of technology in this area. It was done to the front office but now it’s time to be done to the post trade space and distributed ledger technology is the proper technology that can be dropped in and for it to be efficient and secure,” Randall said. He went on to provide five steps to the success of using DLT technology for generalised use:

  1. It should operate at real world speed
  2. Be able to process billions of transactions a day
  3. KYC and AML should be native and embedded into the fabric of the product – not an afterthought
  4. It should be capable of moving real world assets that affect settlement finality
  5. It will not be one pan-galactic blockchain – many chains will have many chains within their processes

A powerful model already exists, which is the mobile phone contracts system. This network allows individuals to pay different amounts and have varying agreements. Here, the chains all talk to each other, so we shouldn’t make the assumption that there will be one big change,” Randall said.

RegTech: the future of innovation

The pace of change is rapidly gaining speed and RegTech is becoming increasingly important for how innovation works in the current framework. In this way, the regulator has to keep up with the current trends and they can waive the rules if needed with no enforcement action letters, according to Geale. This, in turn, encourages innovation. With DLT, firms are currently experimenting with the technology, but the surface is only being scratched and there are many things to come. Technologies like the cloud, machine learning and APIs are just beginning to emerge in the form of products that can actually be used by the mass.

Ruault asked the audience: is the regulator a friend or a foe? And from what the panel said at Sibos this year, it seems as if regulators are fully supportive of fintech and the collaboration of startups with the traditional financial sector. 

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