The dizzying speed of fintech developments has upended traditional regulatory models with many new-breed financial services firms oblivious of legal frameworks, according to Financial Markets Authority (FMA) boss, Rob Everett.
Speaking at Finnotec conference in Auckland early this month, Everett said the days of financial services companies building business models based on stable rules backed by long-established legislation were “over”.
“Now – some of those we talk to – aren’t aware of the regulatory requirements (if there are any) and have definitely not tailored their business model towards them,” he told the Finnotec crowd.
“They don’t speak the language , they aren’t familiar with the concepts and they really can’t see why it should apply to them. Quite a few of them even seem motivated by something completely different to those who typically approach regulators. Evangelists rather than snake-oil sellers. (Or perhaps both)…”
Everett said while technology was changing the industry “quicker than any legislature can keep up with”, fintech firms were still caught under broad regulatory obligations with consumer protection paramount.
“A regulator must address harm or potential harm, and do it fast and hard,” he said.
However, Everett said the FMA had to balance consumer safety against its mandate to foster innovation in financial services with “adjustments to the regulatory framework” a legitimate response.
“Our role is to help firms tackle regulatory barriers to innovation, be it through clarifying regulatory expectations, examining our own rules or enacting policy changes, to give them space to innovate in the interest of consumers,” he said.
Everett cited the recent FMA proposed exemption on robo-advice and crypto-currency guidance as examples of flexible regulatory responses.
“Regulation is particularly important for businesses that want to be scalable,” he said. “We can observe that the battle in technology is not always to be first. It is to provide a quality product that consumers can trust, and for that to be sustainable it needs to be a product that gives consumer confidence that oversight and governance are of good quality. “
And dwindling public trust in traditional financial institutions has lowered the drawbridge for fintech challengers to cross the establishment moat, Everett told a receptive audience.
“The concentration of financial services into a small handful of very large institutions that design, sell, advise on and, in some cases, insure the vast bulk of financial products puts a special onus on those institutions to behave responsibly,” he said.
“And some have not……….nor even competently, in some cases.”
Industry kick-back on “blindingly obvious” reforms like KiwiSaver dollar-fee reporting, retail fund disclosures, overdraft and card fee charges, and life insurance and mortgage commissions, showed incumbents have been slow-adapters, Everett said.
“Any challenger or disrupter businesses that look like they are addressing, really, the customers’ needs and wants will find financial services rich pickings,” he said.