Many see regulations as an impediment to innovation and success. This view is pervasive in the decentralized crypto ecosystem. There are those, however, who maintain a different point of view.
An article posted by Entrepreneur posits that fintech regulations can be a good thing and bring about innovation in the industry. The article cites a paper by the Organisation for Economic Co-operation and Development (OECD) on regulatory reform and innovation that states, “In the economic sphere, regulations can maintain a certain level of openness or competition in product markets which provides the necessary conditions for research and innovation.”
Therefore, the absence of regulation may lead to certain risks and disorganization. The author of the Entrepreneur article says that the spirit of regulations is to foster openness and fairness in the marketplace.
Let us review the positions espoused in the Entrepreneur article.
Lack of Regulation Leads To Risks
Regulations have been absent in some derivative platforms and cryptocurrency exchanges. This has led to several setbacks and accusations, as reports have shown. One such report was about BitMEX, which was charged by the U.S. government with approving unregistered trading in October. This also led to BitMEX conducting an audit on its account holders and various identity verification processes.
This shows that when there is no compliance and regulation, it may lead to a higher risk for abuse. When regulatory agencies do not monitor and verify transactions, the customers may fall victim to fraudsters posing as traders in the industry. Such abuse has caused some governments to take action. Case in point is Hong Kong. According to a recent report, “[T]he Hong Kong government, today, will propose a new licensing regime today under its anti-money laundering legislation, requiring all cryptocurrency trading platforms that operate there, or target investors in the city, to apply for an SFC licence.”
The Entrepreneur author posits that there could be situations where a lack of regulation may enable firms to explore innovative methods of offering new services and products. However, he believes that it is far more common that there is a greater risk that, without regulation, innovation may be trumped in the fintech industry.
Regulation Boosts Assurance for Fintech Companies
The advantages of emerging trends like blockchain have been acknowledged by many large businesses and firms. In this way, such firms also embrace the benefits offered by decentralization. However, due to the probability of legal and security threats attached to decentralization, most of these firms hesitate to embrace blockchain-based solutions and other new technologies.
For instance, the Autorité des Marchés Financiers (AMF), which is the French equivalent of the SEC, recently authorized iExec’s token swap offering. iExec is known for providing a decentralized platform that bridges the gap between apps and trusted off-chain computation and data providers. Basically, it is a decentralized ecosystem where cloud computing takes place.
Due to the approval by the AMF, businesses will now be able to exchange compliant cloud resources. Through this, customers can now be assured of secure and high-quality services. Besides, enterprises that choose to adopt off-chain cloud resources because of their improved privacy, as well as their competitive pricing, have assurance that their options are compliant and in line with regulations.
This regulatory approval has helped iExec to improve its services and various other regulatory regimes have been taken into consideration, especially Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) policies. In this case, the author argues that fintech regulations have acted as a “stimulator for innovation and ingenuity.”
Regulations and Technology Advancement
The Entrepreneur author goes back to the OECD paper when stating that regulations that are well thought out can serve as a stimulus to fintech innovation and not be an impediment. The OECD paper states, “Regulatory reform itself can be a powerful stimulus to innovation in most fields, ranging from banking to environment to retailing.”
With standard regulations and compliance mechanisms, adoption of platforms and solutions are actually encouraged. This encouragement is further boosted if regulators feel a high level of comfort knowing that such innovations are being done within the regulatory frameworks they have constructed.
“When it comes to crypto assets offerings, very few initiatives from financial regulators have proved to be as relevant as the AMF visa. The AMF visa combines both a high level of standards in order to protect investors and the necessary freedom for innovation,” says iExec CEO Gilles Fedak.
Fedak adds, “Enterprises involved in cloud computing care about regulation and being able to offer an AML/CFT compliant version of the RLC token will boost Enterprise adoption, and at the same time reinforcing the iExec ecosystem as a whole.”
The author believes that regulations, especially those pertaining to antitrust situations, help smaller enterprises get the opportunity to gain funding and customer exposure. He cites that the financial and technical fields are rife with instances where larger companies buy out or squeeze smaller competing companies.
In the end, the author states, “Regulations help guide innovation to produce solutions that are not only useful but also dependable, secure, and unlikely to be met with local and geopolitical challenges. Additionally, regulation ensures that competition is not suppressed and the introduction of innovations to foreign markets proceeds in harmony with counterpart regulations and technical conditions.”
Do you agree with the author of the Entrepreneur article? Do you think regulations can be good or bad (or both) for fintech innovation?
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