The World Bank published an article about the necessity to overcome the regulatory dilemma of policymakers worldwide and achieve the right balance between enabling fintech and safeguarding the financial system.
As Covid-19 sweeps the world and disrupts the way we interact and conduct business, innovative technologies can help by providing solutions to maintain social distancing, ensure business disruptions. By reducing the dependence on physical financial interactions and the needs for cash, fintech can facilitate government responses and enable secure ways for governments and providers to reach vulnerable populations quickly and efficiently.
What are the existing regulatory approaches?
Regulatory approaches aimed at promoting innovation and experimentation, support and guide policymakers toward the most useful policy response:
These approaches can be applied either in combination or solely, and more than one initiative can be adopted in tandem to maximize its impact and efficiency. The World Bank report classified their into four categories:
“Wait and See”
Regulators observe and monitor trends of innovation from afar before intervening where and when necessary. Many countries have applied this approach, for instance, in the treatment of cloud computing or developments in distributed ledger technology.
“Test and Learn”
The creation of a custom framework for each individual business case, allowing it to function in a live environment.
A point of contact or a structured framework environment crated to promote innovation and experimentation. This approach can be divided into three sub-categories: Innovation Hubs, Regulatory Sandboxes, Regulatory Accelerators.
Regulatory Laws & Reform
New laws, licenses or amendments of existing laws to capture economic functions are introduced in response to innovative firms or business models.
Policymakers should first and foremost consider their individual country context and evaluate if some “quick wins” are achievable. For example, in response to the sweeping pandemic and the need for digital payments a number of countries, such as Ghana, Kenya, Saudi Arabia, and Uganda have changed the limits on mobile money transactions. Ethiopia has paved the way to allow non-banks to offer basic financial services, opening the door for operators to potentially add mobile money to their portfolios.
There so many pieces at play when debating and deciding the regulatory approaches to be considered, there is no “one perfect solution”. Just like the process of iteration need to hone a perfect business model, the approaches need to e redefined over time and adapted to their own context.
The Covid-19 crisis, while devastating, can bring opportunity for improvement and change, particularly at a time when digital financial services can help reduce the spread of the disease. Policymakers should enhance their mechanisms to co-innovate, share experience, and coordinate their efforts to promote an orderly adoption and integration of innovation that will benefit all.
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