Fintech’s delicate balancing act

Fostering innovation in financial technology requires a delicate balancing act between enough regulation to prevent scams and protect consumers but not so much that growth and progress are stifled.

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Navigating this territory is something governments are grappling with globally. 

" If you design an international aircraft and it cannot land at any international airport it fails the interoperability test. This is how we need to think about global products.” - Ryan

Now fintech regulators, researchers and industry representatives from Australia and South Korea have come together to discuss the common challenges and opportunities in this space.

South Korea sees fintech as a key industry to lead the country’s future with the Seoul Metropolitan Government recently announcing plans to invest more than $AU1 billion in blockchain and fintech startups by 2022 through the Seoul Innovation Growth Fund.

“Regulation is something that could make or break the fintech industry, both in Australia and South Korea,” says Dr Adrian Lee from the University of Technology Sydney (UTS). “If you disallow certain things then you stifle growth and innovation, but on the other hand, good regulation can ensure things don’t break.”

For example, initial coin offerings (ICOs) offer opportunities for developers of blockchain technology to raise funds from the public through coins or tokens - but they are very risky, says Lee. Investors have lost millions through fraudulent ICO offerings.

“You want to make sure these are regulated, with rules around calling yourself an ICO, and how they are issued, whether in Australia or Korea. In China they have banned ICO’s but Australia doesn’t want to totally kill off the innovation,” he says.

The aim of the Australia-Korea Fintech Regulation Symposium was to facilitate dialogue and foster bilateral relationships with the event supported by The Korea-Australia Foundation of the Department of Foreign Affairs and Trade and hosted by UTS Business School.

Australia and South Korea have a strong trading relationship, including a free-trade agreement. Enabling business to harness innovation and technology in financial services are policy priorities for both countries, and many fintechs have ambitions to operate globally.

“Fintech is a broad area that can help businesses and economies grow. But where there is a lack of regulation, industry needs clarity to avoid wasting time and money developing products that might be banned,” says Lee.

Australia currently chairs the International Standards Organisation (ISO), which is developing standards for blockchain. While blockchain is most closely associated with Bitcoin and other cryptocurrencies, it will likely underpin future international commerce and trade.

UTS Senior Law Lecturer Dr Philippa Ryan, who leads the ISO Blockchain Technical Committee Smart Contracts Group, says the aim of standards is to achieve “market liberalism, interoperability and improve trust and reputation”.

“If you design an international aircraft and it cannot land at any international airport it fails the interoperability test. This is how we need to think about global products. Like the internet, GPS and telephone systems, this is not something you want to develop in isolation,” she says.

Cliff Richards, ASX Executive General Manager, Equity Post Trade Services, says the ASX is examining the use of blockchain and distributed ledger technology in regulated capital markets, including the maintenance of share registries, to reduce processing time and increase accuracy.

Meanwhile, Assistant Professor KiHoon Hong from Hongik University in Seoul says the “red hot” nature of the crypto market during 2017/18 in South Korea meant the stability of the financial sector and investor protection was the key concern when it came to blockchain regulation.

“Regulation is definitely needed, however Korea can also learn from Australia regarding the use of blockchain technology in other applications, and separate the technology from the crypto market,” Hong says.

Australia offers a ‘regulatory sandbox’ method, run by ASIC, that provides fintech startups with three broad options for testing a new product or service without a licence, along with support and advice around what they can and can’t do in a particular area.

Fintech startup products and services supported through the ASIC Innovation Hub include robo-advice, crowd funding, peer-to-peer lending and regtech through to ICOs and the application of Artificial Intelligence and data solutions in financial services.

“Now the first steps have been taken, we hope to continue the dialogue between Australia and Korea and build on the relationship. The symposium also highlighted the important role of universities in supporting innovation,” Hong says.

Leilah Schubert is Senior Media and Public Relations Advisor at UTS Business School

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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