Regulatory Initiatives in the LAC Regulatory Challenges and

Regulatory Initiatives in the LAC Regulatory Challenges and Responses Werner Bijkerk Simplexxis First meeting of the Fintech Ecosystem Network 8 -9 April 2019 Panama

Simplexxis Simplifying Regulatory Problems Improving Regulatory Effectiveness Strategy Analysis Training Coaching

Financial technology: definition Different speed of technological penetration: “Change brought about by the rapid proliferation of technology into how business, processes and activities are conducted. ” “Digital disruption can be about ‘game changing’ technology and also the impact of small accumulative changes. ” 3

Financial technology: history Stages of financial technology Era Fintech 1. 0 1866 -1967 Geography Developed world Global Key players Infrastructure Shift origin Instruments Source: Arner et al. Fintech 2. 0 1968 -2008 Banks, brokers, exchange operators Globalization of Technology: financial services digitalization of finance Cable, ATM, SWIFT, telephone, telex Nasdaq, Algo trading, Bloomberg Fintech 3. 0 2008 -now Fintech 3. 5 2008 -now Developed world Developing world Startups and Bigtech/Telcos Financial crisis Market structure Paralization of incumbents; data-driven and platform-based Leapfrog into mobile-based, convenience seeking people 4

Financial technology: impact Fintech could help alleviating bad financial health of: • Hundreds of million people with no access to basic financial services. • Tens of thousands of small enterprises with no access to credit. And, by doing so, boost economic growth and welfare. 5

Financial technology: impact Horizontal unbundling Ver tical un bun d ling Specialization in product/services segments: - Specialization in business operations: - Investments: robo advice, AI/algo run quasi-ETFs SME finance: crowdfunding & Initial Coin Offerings Personal finance, mortgages: crowdlending Payment services: digital platforms, blockchain Calculation-risk management Voice recording Trading of less liquid markets: automation Settlement, corporate actions etc: blockchain, smart contracts Cyber protection Regulation-regtech

Financial technology: impact government investor securities participat ions banking products broker bank firm participations and insurance pension plans mutual fund pension fund insurer stocks bonds securities market clearing settlement payment custody

Financial technology: impact Benefits Competition Diversification Challenges Adoption ‘Incumbents’ Fragmented ‘Fintech’ Inclusion Procyclicality Concentration Efficiency Transparency Loss viability business model ‘Big. Tech’ Operational Regulation

Financial technology: regulatory balancing of objectives Investor Protection Market integrity Financial Stability Basic Safety Nurturing Industry Supporting Market Efficiency Supporting Growth 9

Regulatory complications • • International transactions: legal terms Lack of global standards Lack of harmonization in regulatory approaches Still early in the game for full regulatory regime: not yet passed a full credit cycle of boom and bust 10

Identification of regulatory issues Identification of issues and analysis: • Market changes go fast and spread fast globally • Many new operators/fintech innovators have no finance background, less aware of regulatory standards and norms – high risk of “wild west” • Technology propensity to lock-in and create insiders and outsiders Market intelligence & research 11

Balancing regulatory actions • Regulation propensity to rule in and rule out; don´t throw the baby out with the bathwater • Sometimes rule-based setting minimum standards; • Sometimes principle-based setting flexible standards • Global standards • Innovation rooms • Sandboxes • Maintain regulatory level playing field Careful regulatory analysis and balancing intervention 12

Ensuring regulatory prevention • New parts of population reached, with no experience in finance risks of over -crediting, overly risky investments • New firms reached, with less expertise in finance and governance risk of failures • Many new operators/fintech innovators have no finance background, less aware of regulatory standards and norms risk of non-compliance & harm • International supervisory cooperation in cross-border services and products risk of unregulated services and products • Risk of regulatory race to the bottom • Risk of regulatory arbitrage Design and promote information standards, education, supervision, cooperation 13

Building regulatory and supervisory capacity

Develop monitoring capacity 15

Develop data and analytic capacity

Be on top of the game! 17

Thanks! Soon available: Werner Bijkerk The Foundations of Financial Regulation www. simplexxis. com werner@simplexxis. com wernerbijkerk@hotmail. com 18