The World Federation of Exchanges (WFE), the global industry association for exchanges and clearing houses, set up a FinTech group in 2017 to address the transformative effects of technology on the trading lifecycle. Driving this change are artificial intelligence (including machine learning and big data analytics, etc.), mobile applications, cloud computing and distributed ledger technologies (DLT). This group has now published its first position paper Fintech in the Market Infrastructure Space calling for the introduction of regulatory standards for the FinTech industry.
Increasingly, the FinTech sector is seeing the introduction of a whole array of standards by supervisory authorities and industry bodies covering regulatory and governance frameworks, technical specifications and operational and market practices to oversee and manage the impact and pace of financial technological innovation.
The WFE paper sets out seven principles which should be incorporated in FinTech standards:
WFE seven principles
1. In general, innovation should be market driven and not be constrained unnecessarily by regulation.
2. Legislation, rules and practices should only be adopted if strictly required, the scope of existing regulations should be broadly sufficient to extend to many or most potential FinTech initiatives.
3. Any regulatory approach should encourage innovation whilst ensuring investor protection and system stability.
4. The underlying principles of outsourcing remain sound and appropriate and so regulated entities use of new FinTech applications and solutions should be treated consistently with the outsourcing of any other function in the absence of any additional regulatory impact, notwithstanding jurisdiction issues in relation to the cloud and the appropriateness burden for cloud service providers.
5. There should be open, regular and proactive dialogue between regulators and the market for authorities to understand the technology which underpins FinTech applications and ensure the existence of an appropriate regulatory framework.
6. FinTech is innately international with global applications and users: regulatory principles and/or guidelines should therefore be developed at the global level to reflect the increasingly global nature of markets; and
7. There should be consistency in the application of rules to both incumbents and new FinTech entrants in the interests of maintaining the integrity, stability and fairness of the system. (A lack of awareness of the regulatory environment by previously unregulated entities may result in negative consequences for investor protection and orderly markets).
WFE urge authorities to work proactively and collaboratively with industry and cite the success of regulatory sandboxes and innovation hubs here.
Click for more information on techUK's ongoing areas of work in its financial services & payments programme.