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Regulations are a feature of the financial services landscape and a key consideration (and burden) for FinTech businesses when setting up and operating their businesses. FinTech is, by definition, the application of technology to support and enhance the provision of financial services. It can be helpful to think of law (including regulations) as another type of technology. Law is a human invention that, when well-executed, enables us to achieve efficiencies and goals we wouldn’t otherwise be able to. Looked at in this light, regulations are not external to FinTech, but an integral part of the technology ecosystem.
Of course regulations can enable, and also restrict, the advancement of FinTech. Businesses in the FinTech sector can be disproportionately affected by ineffective regulatory regimes. For example, until recently, some types of robo-advice were prohibited in New Zealand, because of a legal requirement that the advice be provided by humans. The Financial Markets Authority has now removed that requirement, provided certain standards are met by the provider. This is a good example of regulation adapting to meet the needs of the market. It follows that FinTech businesses, to the extent feasible, should actively engage in the process of making and updating regulations, to help to ensure regulations are effective and don’t unnecessarily stifle innovation and business activity.
Services, including financial services, are increasingly traded digitally across borders. So development of regulations that support that trade, while protecting customers and the reputation of regulatory systems themselves, is becoming more important. New Zealand, with its strong institutions and relatively small size, is well-placed to develop and maintain effective and flexible regulations that will further support the growth of FinTech in New Zealand. Effective regulations can also be used to support New Zealand as a place to locate reputable export-orientated FinTech businesses, in order to grow and diversify New Zealand’s export base.
Simon Papa, Director, Cygnus Law Ltd