FX International Payments
By Mike Faden
These organizations say that the rapid pace of technological change sweeping through financial services worldwide requires regulators to adapt and cooperate in new ways. “The major emerging innovation trends within financial services are increasingly global, rather than domestic, in nature,” the agencies noted in an August 2018 consultative document. “Financial services regulators must reconsider existing ways of working and collaborating, in order to balance potential benefits of innovation … with traditional policy objectives, namely financial stability, integrity, financial inclusion, competition and consumer wellbeing and protection.”1
The agencies state that they believe GFIN could serve three main functions:2
Many countries have established regulatory efforts to encourage fintech innovation and facilitate approval of technology-based financial products. However, to date, those have mostly been domestic initiatives or bilateral information-sharing agreements, rather than broad international collaborations.
Among such efforts are national “regulatory sandboxes,” which are frameworks created by financial regulators to allow small-scale, live testing of new financial services with some regulatory supervision, but without requiring a full licensing process. The goal is to enable companies to innovate faster at lower cost within a highly regulated industry, while ensuring adequate consumer protections.
In February 2018, the U.K. Financial Conduct Authority (FCA) proposed the development of a global fintech regulatory sandbox that would let companies test new products in several countries at the same time, while allowing regulators from different countries to work together. It said that its experience operating the U.K. sandbox demonstrated that fintech startup companies may need to operate globally, even during exploratory stages.
“Through the sandbox, we’ve seen 30 applications from international firms and have gone on to support 11 of them – many of which are also in other countries’ innovation programs. It’s clear which way the wind is blowing,” Christopher Woolard, the FCA Executive Director of Strategy and Competition, said at the time.3
The FCA said that a global sandbox initiative requires international collaboration, and it sought feedback from interested parties. The FCA proposal and consultation process spawned the beginnings of the GFIN initiative, which was announced about six months later, in August 2018.4
Eleven agencies jointly announced the GFIN initiative. In addition to the CFPB and FCA, they included financial-services regulators from Australia, Abu Dhabi, Bahrain, Dubai, Guernsey, Hong Kong, and Singapore, along with Canadian provincial regulatory bodies in Ontario and Quebec, plus the Consultative Group to Assist the Poor (CGAP).
According to the CFPB, GFIN will seek to provide a more efficient way for innovative fintech companies to interact with regulators, helping them navigate among countries as they look to scale new ideas. It will also create a framework for cooperation between financial services regulators on innovation-related topics.5 The GFIN announcement noted that big data, artificial intelligence (AI), and blockchain-based solutions are being developed and deployed simultaneously in different financial markets; collaboration between regulators could help manage and support the introduction of such products.
The group said that its goals have expanded beyond regulatory sandboxes to three broader, complementary functions, described below. It solicited feedback from interested parties, including fintech companies, trade bodies, consumer groups, and other stakeholders, to help refine its mission and define next steps.6,7
One GFIN goal is to act as a community of regulators and related organizations that promotes information sharing about emerging innovation trends and local initiatives, while also providing contact information for fintech companies. GFIN will contain sub-groups focused on different topics, and is expected to meet regularly.8
The network would seek to help fintech firms explore topics such as international expansion and cross-border policy issues. For example, the group noted that it can be difficult for fintech companies to initiate conversations with regulators in a new, unfamiliar market. GFIN will seek to ameliorate this by helping firms interact with multiple regulators, according to the group’s consultative document.
According to GFIN, fintech companies say that differences in regulatory approaches can act as a barrier to scaling new ideas across markets. GFIN could potentially identify these areas of divergence and cooperate on policies. For example, solutions for cross-border payments, anti-money laundering (AML), counter-terrorist financing (CTF), or cross-border identity verification might require a common approach across jurisdictions to be economically feasible and interoperable, according to the group. Joint work could include publishing findings from cross-border trials and comparative market studies on common areas of interest; it could also include supporting “tech sprints” that generate prototype solutions.9
Currently, there is no global platform that allows fintechs to trial new ideas with customers in multiple jurisdictions while working with the appropriate regulatory authorities, noted GFIN. The agencies said, however, they believe there is industry demand for such a solution. Cross-border trials could help companies navigate regulatory issues across multiple jurisdictions and gain real-time insight into how their product or service operates in the market. The group said it sees benefits for companies trialing a single solution in multiple markets, as well as for solutions that operate across borders, such as international payments.10
For the first time, regulators in different countries are collaborating through a formal, multilateral initiative to support fintech innovation across national boundaries. The GFIN initiative could help fintech companies introduce new products in multiple countries, including cross-border payments solutions. After gathering feedback on their initial proposals, the regulators plan to further define their mission and focus areas.
Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.
1. Global Financial Innovation Network (GFIN) Consultation Document, GFIN; https://files.consumerfinance.gov/f/documents/bcfp_global-financial-innovation-network_consultation-document.pdf
3. “Regulating innovation: a global enterprise,” U.K. Financial Conduct Authority; https://www.fca.org.uk/news/speeches/regulating-innovation-global-enterprise
4. “FCA announces the creation of the Global Financial Innovation Network,” Lexology; https://www.lexology.com/library/detail.aspx?g=cbefcb6e-3adb-442f-a59e-eb1571c3a411
5. “BCFP Collaborates With Regulators Around The World To Create Global Financial Innovation Network,” Consumer Financial Protection Bureau; https://www.consumerfinance.gov/about-us/newsroom/bcfp-collaborates-regulators-around-world-create-global-financial-innovation-network/
6. Global Financial Innovation Network (GFIN) Consultation Document, GFIN; hhttps://files.consumerfinance.gov/f/documents/bcfp_global-financial-innovation-network_consultation-document.pdf
7. “BCFP Collaborates With Regulators Around The World To Create Global Financial Innovation Network,” Consumer Financial Protection Bureau; https://www.consumerfinance.gov/about-us/newsroom/bcfp-collaborates-regulators-around-world-create-global-financial-innovation-network/
8. Global Financial Innovation Network (GFIN) Consultation Document, GFIN; https://files.consumerfinance.gov/f/documents/bcfp_global-financial-innovation-network_consultation-document.pdf