Fintech has changed the landscape of investment and capital financing. Given the global scope of decentralised finance (DeFi), one of the biggest challenges faced by the industry involves fragmentation in regulatory frameworks.
This is an opportunity for regulators to establish policies that are conducive to growth and innovation.
For technology providers, this is also an opportunity to collaborate on solutions that ensure compliance across global jurisdictions and standards. In a whitepaper, the World Economic Forum has cited the need for policymakers to establish standards in regulation that will encourage innovation and growth.
This entails a higher level of collaboration between technology firms and regulators, as well as cooperation among the companies involved. Such collaboration will encourage wider adoption of fintech services, and it has the potential to improve the levels of capital flow, utilising innovative mechanisms for investment and finance.
“The biggest challenge I feel is the lack of regulation or regulatory clarity in many jurisdictions. This has also led to jurisdictional arbitrage,” says Ian Lee, Founding Team and Lead Investigator at Merkle Science, a Singapore-based deep-tech startup that provides comprehensive monitoring solutions for the security of digital assets. He adds that “the lack of regulatory clarity has also been one of the biggest barriers preventing institutional money from getting involved in the space.”
Regulatory standards need to support growth and innovation
In any financial system, regulatory frameworks are established to improve trust through transparency and adherence to standards. This is geared toward protecting consumers and investors.
Having clarity in global regulation and compliance enables better collaboration and innovation in the ecosystem. “Businesses could focus on the innovation of technology without being afraid of law enforcement if the developers and entrepreneurs comply with the applicable rules,” says Sheldon Xia, Founder and CEO of BitMart, a global trading platform. “Investors’ and users’ rights could be protected not only by the code of rule but also the regulation in real life.”
By ensuring transparency, compliance leads to improved trust in technology platforms and the ecosystem. “Regulation and compliance transform to transparency and trust. The more we can observe how these products work and how they are managed internally, the better,” says Hendrik Henrikson, Chief Business Development Officer of PARSIQ, a platform that provides automation solutions for businesses to manage their internal workflows, mitigate risks, and provide flexibility in working with blockchain data.
Tech companies need to collaborate with regulators
Establishing regulatory frameworks will require better cooperation and collaboration between regulatory bodies and technology companies. This is necessary to arrive at solutions that promote both compliance and innovation. Regulators should not be seen as a challenge to innovation. Rather, they should be seen as collaborators.
“Strong support for regulation and compliance is in the best interests of developers and innovators. Regulators will need to have a pulse on the need of the industry in order to create rules that address the most pressing needs,” says Kenny Au, Founder at Elevate Ventures, a Hong Kong-based technology venture firm. “For example, in many jurisdictions–which in Asia include Singapore, Thailand, and Hong Kong–regulators have established sandboxes to insulate their main financial systems from potential externalities, but there needs to be more collaboration done in order to achieve scale.”
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For one, there needs to be better communication and information exchange in the ecosystem. “More collaborations need to be made among the stakeholders, and the information needs to be shared and exchanged in a wider range,” says BitMart’s Xia. “We have witnessed in the market that some VC-funded projects went insolvent prior to the launch of the product due to very limited real needs in the market.”
Such collaboration will enhance the flow of capital. “Exchange of information, mutual integrations and bringing accessibility to regular users” are necessary for addressing the needs of the ecosystem, says PARSIQ’s Henrikson. He adds that “access to capital and increased transparency will remove borders from access to financial products, promoting financial liberty.”
The takeaway
Solutions that enable compliance through transparency and intelligence will play a significant part in ensuring trust in the ecosystem. The right tools will enable financial institutions to conduct a comprehensive analysis of fund activity and movements. “With products being secure and transparent, I see that there are more chances for these types of products to be accepted by existing authorities,” advises Henrikson.
In addition to collaboration, there also needs to be more visibility and education concerning the ecosystem for FinTech. Such awareness helps legitimise new technologies, leading to improved recognition, knowledge, and acceptance from the market.
In conclusion, standardising regulatory and compliance frameworks will encourage larger capital flows into technology projects and the digital asset ecosystem as a whole, thus improving access to capital and further enhancing innovations.
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