The World Bank and the Cambridge Centre for Alternative Finance (CCAF) at Cambridge Judge Business School, University of Cambridge, have jointly published the results of their Global COVID-19 FinTech Regulatory Rapid Assessment Study, which reveals that the priority of FinTech regulation and the pace of regulatory innovation have increased amid the global pandemic. This research is supported by the UK Foreign, Commonwealth and Development Office (FCDO).
The study, which gathered responses from 118 central banks and other financial regulatory authorities in 114 jurisdictions worldwide, highlights that the majority of respondent regulators have either accelerated existing regulatory innovation initiatives or introduced new initiatives. For example, 72 per cent of respondents have either accelerated or introduced initiatives on digital infrastructure, 58 per cent have either accelerated or introduced initiatives regarding RegTech/SupTech, and 56 per cent did so in regard to innovation offices. No surveyed regulators reported the cancellation of an innovation initiative due to COVID-19, although around 20 per cent indicated they had delays.
Regulators in jurisdictions with higher COVID-19 stringency measures are more likely to have accelerated their regulatory sandbox initiatives (42 per cent) compared to those in lower stringency jurisdictions (33 per cent). Overall, regulators from emerging market and developing economies (EMDEs) are more likely to have developed new initiatives or accelerated planned initiatives.
At the same time, the priority of FinTech for regulators has either increased, or remained high, in light of COVID-19. In EMDEs, almost two-thirds of regulators said it has increased in priority. Over half of regulators in advanced economies said it has remained high. Central banks are more likely to have increased the prioritisation of their FinTech work relative to other financial regulators (65 per cent among central banks vs 38 per cent among other financial regulators).
These regulatory changes are taking place as 60 per cent of respondent regulators have observed strong increases in the use, or offering, of many FinTech products and services since the outbreak of the pandemic. The study also details that regulators in EMDEs are more likely to have reported increases in the use of digital payments and digital banks.
Thirty seven per cent of surveyed regulators have taken at least one regulatory measure specifically targeting FinTech sectors or activities. The most salient measures, especially in EMDEs, were directed at digital payments and remittances (65 per cent of respondents in EMDEs), such as waiving transaction fees, partially or in whole, and raising transaction thresholds.
Importantly, the study highlights that regulators are taking actions as they see rising risks in the FinTech market during COVID-19 concerning cybersecurity (78 per cent referencing as a top three risk), operational risks (54 per cent), consumer protection (27 per cent) and fraud and scams (18 per cent). In particular, 90 per cent of surveyed regulators from advanced economies see cybersecurity as one of the top three increasing risks associated with FinTech activities.
Although 80 per cent of surveyed regulators felt that they have been resilient and adaptable in their response to the challenges of COVID-19, they also identified key internal challenges when it comes to the regulation and supervision of FinTech activities. Most common are challenges in performing core regulatory functions (e.g. on-site inspections of firms) (49 per cent overall, and 65 per cent of respondents from advanced economies), coordination with other domestic agencies (39 per cent), access to accurate and timely data (29 per cent), increased demand on resources (29 per cent), and restricted access to essential information or technology (28 per cent). Regulators in jurisdictions with more stringent COVID-19 measures are more likely to have indicated that domestic co-ordination is challenging (46 per cent vs 34 per cent).
To support their work on FinTech in light of COVID-19, regulators considered they would benefit most from skills development (80 per cent) and technical support (67 per cent). This study also detailed lessons learned and future considerations that were shared by responding regulators. These include experimenting with nimble measures, facilitating regulatory-industry engagement and knowledge transfer among regulators in the short-term, as well as strategically strengthening RegTech/SupTech capabilities and supporting the transition to digital infrastructure in the long run.
“This research was undertaken in order to better understand the experiences of regulators as they face the impact of COVID-19 and increased utilisation of digital financial services and FinTech,” says Caroline Freund, Global Director of Trade, Investment and Competitiveness at World Bank Group. “The findings show that COVID-19 has in many cases accelerated policies and programmes that support a shift to digital finance, such as innovation offices and regulatory sandboxes.”
“COVID-19 is accelerating the change in the way that people interact with financial services and it has led to unprecedented demand from developing countries to progress their transition to secure and inclusive digital finance,” says James Duddridge MP, the UK’s Minister for Africa at the Foreign Commonwealth & Development Office, which supported this study. “I trust that this report will inform and inspire countries around the world, help support their FinTech regulatory strategies and encourage greater collaboration across jurisdictions.”
“Global challenges such as COVID-19 require global efforts and local solutions,” says Bryan Zhang, Executive Director and Co-founder of the CCAF. “We hope that the global regulatory community will find this empirical study immediately and practically useful in facilitating policy learning, formulating regulatory innovation initiatives and informing evidence-based regulation, both during the pandemic and beyond.”
“COVID-19 has been catalytic in pushing FinTech up the agenda for regulators and is affecting regulatory approaches, practices and processes,” says Philip Rowan, Lead in Regulatory Innovation at the CCAF. “The increasing digitalisation of financial services will require parallel innovation and transformation in financial regulation and supervision, encompassing not only technology but also changes in mindset and culture.”