Dear Readers,
Financial Technology (or, more snappily, “FinTech”) has been on the rise in recent years. Financial markets are subject to multiple legal regimes, which act in parallel to ensure that consumers and investors can have faith and security in the integrity of the financial system. FinTech raises certain novel concerns that regulators (including antitrust authorities) are currently grappling with.
FinTech is a broad term, but, at its essence, it refers to new technology that seeks to improve and/or automate the delivery and use of financial services. Initially, the term FinTech was used to refer primarily to innovations employed at the so-called “back-end” systems of established financial institutions. Increasingly, however, new technology has been deployed to refer to consumer-focused services encompassing education, retail banking, fundraising and nonprofit sectors, and investment management, to name but a few.
Perhaps the most prominent example of FinTech disrupting existing financial markets has been the rise of cryptocurrencies (though despite their meteoric success, for now, the bulk of regulation remains focused on governing the established financial institutions, in light of their sheer market power). The articles in this Chronicle run the gamut of the FinTech space, with a specific focus on antitrust rules (and how they interact with existing regulatory regimes).
Marcel Haag opens with a timely piece querying what the the regulatory approach to FinTech should be in the EU? Should the existing set of regulatory regimes apply (with the caveat that certain parts that fail the existing criteria should be banned)? Or is there a need for a new, bespoke regulatory regime (or set of regimes) for novel financial services? The European Commission has embraced a forward-looking policy towards digital finance; spanning the domains of both Fintech and so-called “BigTech.” The article focuses in particular on two proposed legislative frameworks in the pipeline: the proposal for a Distributed Ledger Technology pilot regime and the proposal for a Regulation on Markets in Crypto-Assets.
In turn, Michael McKee & Marina Troullinou discuss developments in the UK. The Financial Conduct Authority (“FCA”) – the UK’s regulator for financial services – has a specific role in promoting effective competition financial services for the benefit of consumers. The so-called “regulatory sandbox” is one of the FCA’s main tools in this regard. It allows innovators to test new products in a live market environment in close collaboration with the FCA. In addition to being a testing platform for firms, it is also a forum to foster cooperation between the FCA and market innovators. The article explores how the sandbox has evolved since its introduction in 2016; and offers insights on how it has worked in practice.
Andrew Godwin discusses the challenges for regulatory design in the area of cryptocurrencies. The article focuses on the likely direction of reform in Australia and examines the challenges inherent to the area (not least in reference to the definition of what crypto assets even are). In terms of possible reform, the article suggests, inter alia, a move away from a prescriptive, rules-based approach in favor of a principles-based approach, and the conferral of greater powers and flexibility on regulators to adapt to challenges brought about by technology.
Christopher B. Leach focuses on how the U.S. Federal Trade Commission (“FTC”) has shown itself to be among the industry’s most active regulators. The agency enforces not only the broad prohibition on unfair and deceptive acts and practices, but also a range of laws, including ECOA, TILA, and the FCRA, among many others. Indeed, the article brings out the fact that FinTech regulation is the archetypal “alphabet soup” of multiple laws and regulators; due in no small part to its novel nature. In particular, the article focuses on the agenda of the newly-minted chair of the FTC (Lina Khan) and her likely moves in this rapidly-evolving space.
Susan Joseph addresses calls for a comprehensive federal scheme that would recognize privacy as a fundamental right. Specifically, these calls call for solutions that would be architecturally developed from the individual privacy point of view. Such so-called “trust frameworks” will need to mesh with new laws that support privacy as a fundamental right.
Finally, Lee Reiners focuses on issues related to the regulation of cryptocurrencies as potential commodities. Should crypto assets be regulated by analogy with assets that are currently regarded as commodities, or be subject to a bespoke regime? This is a question that legislators and other policymakers will face for years to come.
As always, many thanks to our great panel of authors.
Sincerely,
CPI Team
