{"id":2309,"date":"2018-09-06T08:33:57","date_gmt":"2018-09-06T07:33:57","guid":{"rendered":"https:\/\/www.alvantia.com\/?p=2309"},"modified":"2018-09-06T08:33:57","modified_gmt":"2018-09-06T07:33:57","slug":"fintechs-relationship-traditional-banking-regulatory-authorities","status":"publish","type":"post","link":"https:\/\/www.alvantia.com\/en\/fintechs-relationship-traditional-banking-regulatory-authorities\/","title":{"rendered":"Fintechs: their relationship with traditional banking and regulatory authorities"},"content":{"rendered":"<p style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">As we saw previously in the <span style=\"text-decoration: underline;\"><span style=\"color: #0000ff; text-decoration: underline;\"><a style=\"color: #0000ff; text-decoration: underline;\" href=\"https:\/\/www.alvantia.com\/en\/fintechs-an-introduction-and-analysis\/\">first post<\/a><\/span><\/span>, Fintechs (business players that combine ICT and finance) undoubtedly offer multiple advantages to consumers by positioning them at the heart of financial products and services. However, some concerns are arising with regards to regulation, supervision, compliance and security. <\/span><\/p>\n<p><!--more--><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">This revolution or disruption in the financial sector at the hand of technology agents occurs, according to Philippe Gelis (CEO of the foreign-exchange Fintech Kantox), in 2 waves:<\/span><\/p>\n<ul>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\"><strong>In the first wave<\/strong>, which we are experiencing at the moment, the Fintechs are disbursing in different verticals of the traditional financial sector, generating a phenomenon known as the \u201cunbundling of a bank\u201d. The banking verticals with greater opacity and inefficiency are those which are most successfully attacked by Fintechs. <\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\"><strong>In the second wave<\/strong>, once the regulatory requirements have been met, the traditional banks would be confronted with the emergence on the market of newly created banks, launched as Fintechs, which would offer their customers all the financial services required by them through an alliance with other Fintechs specialising in these services. To do this, they would use APIs (Application Programming Interfaces), which facilitate the relationship between two applications for exchanging messages or data.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">The reactions the traditional banks are showing to the Fintech phenomenon are broadly divided into:<\/span><\/p>\n<ul>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">Frontal opposition, generally by smaller entities with limited geographical scopes, which only perceive Fintechs as a risk.<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">Collaborative competition or competition from larger international institutions, generating incubators, accelerators, investment in start-ups through venture capital, acquisition or the creation of new purely Fintech banks&#8230; In addition to the risk posed by Fintechs, they appreciate the opportunity they present.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">According to\u00a0 <span style=\"text-decoration: underline;\"><span style=\"color: #0000ff;\"><a style=\"color: #0000ff; text-decoration: underline;\" href=\"https:\/\/www.pwc.es\/es\/financiero\/fintech.html\">PwC\u2019s global Fintech 2017 survey<\/a><\/span><\/span>, the trend is now leaning towards the second option (collaborative competition). 88% of the entities in the traditional financial sector (banks, insurance companies, securities agencies, asset managers, brokers, etc.) are concerned about the arrival of these new competitors. However, the fear of losing part of their business (24% of their revenue) has already prompted 45% of traditional financial institutions to maintain some kind of agreement with the new agents, and <strong>82% say they will increase the number of alliances<\/strong> they have in the next 3-5 years<\/span><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">As we can see, in recent years traditional financial institutions have been experiencing fewer concerns. But&#8230; has enough progress been made in terms of regulations?<\/span><\/p>\n<h1 style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 14pt;\">Regulation on Fintechs<\/span><\/h1>\n<p style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">When it comes to their relationship with regulatory and supervisory authorities, we can distinguish 3 types of Fintechs:<\/span><\/p>\n<ol>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">New operators wishing to provide regulated services.<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">Authorised operators who wish to extend the range of their services.<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">Technological companies that provide services to the above, maintaining their activity outside the financial regulatory framework.<\/span><\/li>\n<\/ol>\n<p style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">The regulation that affects them depends on the countries where they are based. The United Kingdom has definitely been the pioneer in developing regulatory incentives that favour Fintechs. In 2014, the Financial Conduct Authority (FCA) launched <span style=\"text-decoration: underline;\"><span style=\"color: #0000ff; text-decoration: underline;\"><a style=\"color: #0000ff; text-decoration: underline;\" href=\"https:\/\/www.fca.org.uk\/firms\/fca-innovate\">Project Innovate<\/a><\/span><\/span>, with three outstanding initiatives:<\/span><\/p>\n<ul>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\"><strong>Regulatory Sandbox<\/strong>: a mechanism to facilitate the go-to-market of Fintech entities by creating an environment where such entities test products or services before launching them onto the market under a \u201cnon-application\u201d of penalties regime.<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\"><strong>Call for input<\/strong>\u00a0through which feedback is given from the Fintechs.<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\"><strong>Advice units<\/strong> to provide policy advice.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">This project has served as a model for sector entities in other countries. For example, in 2017 the Spanish Association of Fintechs and Insurtech published its <span style=\"text-decoration: underline;\"><span style=\"color: #0000ff;\"><a style=\"color: #0000ff; text-decoration: underline;\" href=\"https:\/\/solucionesconfirma.es\/observatorio\/wp-content\/uploads\/LibroBlancoFinTech.pdf\">White Paper on Fintech Regulation in Spain<\/a><\/span><\/span>, with the aim of laying the regulatory foundations to favour the business activity of Fintech operators in the Spanish financial sector. The proposals for regulatory changes are based on four ideas: <\/span><\/p>\n<ol>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\"><strong>Customised authorisation and fast turnaround time<\/strong>: \u201cgo-to-market\u201d in 1 month, proportional to the activity intended and with much more simplified and less complex license access conditions than the current ones.<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\"><strong>Implementation of a regime of exemptions<\/strong> in the application of certain business conduct obligations.<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\"><strong>Virtual Testing Space<\/strong>, where entities can experiment with their solutions using virtual means without accessing the market.<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\"><strong>Implementation of a specific Authorisation Department<\/strong> for Fintechs and a technical advisory team under each Financial Supervisor in the three markets (Banking, Investment Services and Insurance)<\/span><\/li>\n<\/ol>\n<p style=\"text-align: justify;\"><span style=\"font-family: Arial, Helvetica, sans-serif; font-size: 12pt;\">In conclusion, as the PwC report showed, the <strong>main obstacles to collaboration between traditional entities and Fintechs<\/strong> are regulatory uncertainty, cybersecurity, differences in the management model and corporate culture, and differences in business models. Fintechs have already made progress in overcoming the first hurdle (the adaptation of the regulatory framework to the new demands of consumers of financial services), although there is still a long way to go. The lack of concrete actions for the regulation of this phenomenon by the Public Authorities would result in a competitive disadvantage for Spanish entities, with other countries with safer regulatory environments for this activity ultimately benefiting.<\/span><\/p>\n<div class=\"clearfix\"><\/div>","protected":false},"excerpt":{"rendered":"<p>As we saw previously in the first post, Fintechs (business players that combine ICT and finance) undoubtedly offer multiple advantages to consumers by positioning them at the heart of financial products and services. However, some concerns are arising with regards to regulation, supervision, compliance and security.<\/p>\n<p class=\"cv-read-more-button\"><a class=\"cv-button button is-standard color-accent has-icon icon-after\" href=\"https:\/\/www.alvantia.com\/en\/fintechs-relationship-traditional-banking-regulatory-authorities\/\">Continue Reading<i class=\"button-icon icon-right-open-big\"><\/i><\/a><\/p>\n","protected":false},"author":2,"featured_media":2289,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[215,186,211,227,187,206],"tags":[51,235,267,236],"class_list":["post-2309","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-alvantia-en","category-alvantia-2","category-banca-en","category-banking","category-technology","category-tecnologia-en","tag-banca-en","tag-banking","tag-fintech-en","tag-technology","not-single"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/posts\/2309","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/comments?post=2309"}],"version-history":[{"count":4,"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/posts\/2309\/revisions"}],"predecessor-version":[{"id":2313,"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/posts\/2309\/revisions\/2313"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/media\/2289"}],"wp:attachment":[{"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/media?parent=2309"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/categories?post=2309"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.alvantia.com\/en\/wp-json\/wp\/v2\/tags?post=2309"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}