How Regulators Can Help Drive Innovation

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Ripple supports unified regulatory measures that encourage innovation. Image: Florian Hirzinger

Innovation typically results from the convergence of three key domains: financial services, technology, and regulations. The regulatory framework is a crucial aspect of innovation.

When crafted in a balanced, proactive way, regulations actively drive innovation and market competition. Yet, when regulatory frameworks are poorly crafted or not given necessary attention, they can directly restrict innovation and product development.

For this reason, Ripple has engaged with global policy makers dating back to our early days.  We take keen interest in regulatory initiatives aimed at promoting responsible innovation.  This means, beyond securing our BitLicense, we have been working closely with regulators to enable FinTech companies the latitude to explore new products and technology in a safe way.  

Many global regulators recognize that new technology can lead to stronger and more efficient financial products and services. Here are a few recent regulatory events that illustrate this:

 

  • Singapore

The Monetary Authority of Singapore (MAS) issued a consultation paper last month in which they laid the framework for a FinTech regulatory sandbox. During this sandbox period, MAS would relax a number of regulatory requirements to allow FinTech companies the flexibility to develop their products in an exploratory yet responsible environment.  

Sandbox proposals, in Singapore and other countries, have the potential to create a safe space for innovation. They may enable companies to develop positive, proactive relationships with their regulator(s), while empowering regulators to learn about emerging technology as it develops. The benefits accrue to all participants and ultimately result in better products and services for consumers and businesses.

Ripple finds MAS’s proposed sandbox to be an example of a well-crafted regulatory proposal that strikes the proper balance between innovation and oversight. (See our comment letter.)

The proposal is structured to preserve crucial requirements such as consumer protection, data security and AML – expectations that are too important to consider easing. Yet it temporarily lowers barriers such as licensing fees and financial expectations – items often challenging for small or young companies to meet. MAS’s efforts to clearly define the Sandbox’s expectations will attract new innovations, products, and services – further establishing Singapore as a leader in financial services.

 

  • The United Kingdom

The United Kingdom has also been active in helping financial technology to flourish. Mark Carney, the Governor of the Bank of England, gave a speech last month describing the Bank’s approach to “calibrating its regulatory approach to FinTech developments.”

Ripple applauds Bank of England’s approach and similar efforts to explore where regulations might hinder positive innovations. Regulations are rightfully in place to ensure safety and security, yet exploring where regulations may not reflect the unique characteristics of new technology is a fruitful exercise, resulting in more effective regulations and safer, more effective financial systems.

Many new technologies are global in scope, making international coordination an important part of a regulatory framework. The UK’s Financial Conduct Authority (FCA) is a shining example of driving international coordination.

Earlier this year it signed an agreement with the Australian Securities and Investments Committee to create an “innovation hub,” supporting businesses aiming to develop new financial products and services. The FCA established relationships with the Monetary Authority of Singapore and The Republic of Korea to enable a more fluid exchange of information between financial companies and investors in each country. These efforts allow innovation to flourish in these countries while empowering the regulators with greater vision and oversight of developing technology.

Ripple is encouraged by these steps and looks forward to supporting similar efforts globally.

Co-written by Liza Partington