Gearing our regulatory framework for investment and growth: Q&A with Binu Paul, specialist lead for fintech at the Financial Markets Authority (FMA) and chair of the fintech forum of the Council of Financial Regulators.
How does the FMA go about fostering a progressive regulatory environment?
In New Zealand, the Financial Markets Conduct Act 2013 (FMCA) mandates the regulator to promote innovation and flexibility in financial markets. It provides a broad scope to put in place measures to foster new thinking and help innovation flourish. As such, the FMA takes a principles-based regulatory approach, rather than a prescriptive one. At the same time, it strives to balance protection for consumers with the need to avoid unnecessary compliance costs.
We also work with our overseas counterparts on both contemporary and emerging trends. Global best practices are then assimilated into the policy and regulatory decision-making, as appropriate for New Zealanders.
New Zealand has always looked to implement international best practices, as well as not taking a one-size-fits-all approach. This has helped foster innovation in the past and sets us up well for the future.
How has the FMA supported initiatives for the fintech ecosystem in Auckland?
Back in 2014, Parliament enabled peer-to-peer lending and equity crowd-funding services by establishing a regulatory framework for fintechs to operate in these sectors. We’ve been licensing that sector since then. In 2016, we supported the Kiwi Fintech Accelerator, via provision of regulatory guidance for the cohorts.
In 2017, we established the Innovation Strategy Group, a cross-departmental initiative to discuss, debate and advise on emerging fintech themes. We also established and published our position on cryptocurrencies in 2018, followed closely by amending legislation to enable provision of digital financial advice to retail consumers.
We were early supporters of FintechNZ, the industry body, as well as the industry-led Fintech Regulatory Roundtable. The FMA also chairs the fintech forum of the Council of Financial Regulators (COFR), which provides fintechs with a one-stop shop for regulatory guidance from multiple agencies.
Are there particular areas of fintech the FMA sees as promising and it plans specific strategies around to grow them?
At the FMA we are open to innovation across the whole range of financial services. We see our role as providing the appropriate regulatory environment that enables innovators to work on and implement new ideas that benefit consumers.
I believe one area of technology-enabled financial services that has room to grow significantly, and could be of particular interest to investors, is in the area of risk and compliance, often referred to as ‘regtech’. I believe over the next few years we will see a surge in this sector driven by both established incumbents as well as startups. I also believe the emergence of a customer data rights framework (which enables open banking) and a digital ID framework, both of which are in play currently, will kick-start a pipeline of innovative financial service solutions.
At the FMA we take a consultative role in shaping related policies around these topics. Our wide engagement with industry means that we have a sense of developments emerging across the many fintech streams, including regtech.
How does the FMA create clarity around regulation? Is this a mainly proactive or reactive process?
We always recommend that innovators reach out to us for guidance as early as possible in their product development journey. This makes sense through a number of lenses.
First, a level of guidance early on provides the innovator direction on what their product runway looks like. Having to go back to the drawing board part-way through product development can be expensive – through added development time as well as delays to launching, which is time out of market.
Second, it provides a no-surprises view of your product to the regulator before you go to market. This enables everyone involved to better understand customer outcomes and how best to achieve them.
We also proactively publish guidance on various aspects of regulation that benefit our stakeholders.
How is the FMA helping to nurture business-to-business (B2B) or business-to-consumer (B2C) in Auckland’s fintech industry?
Our role as enablers of innovation means that we strive to foster new ideas from across the sector, as opposed to specific business structures, technologies or participants. Our principles-based approach means that we can review an individual idea on its merits and provide guidance on the same.
One point worth considering is that there is a sharper focus on B2C solutions as they are typically targeted at retail consumers, as opposed to services offered to businesses. We expect financial services businesses to have appropriate due diligence processes in place when choosing third-party providers of services, including any fintechs that sell to them.
How do we go about competing internationally with other fintech hubs? To what degree are we competing for the same markets?
In the context of an increasingly digitalised world, fintech solutions are border agnostic (though of course, there may be nuances in specific regulatory and tax angles to consider). Meanwhile, our primary focus and our mandate is to ensure Kiwis enjoy a fair, efficient and transparent financial services sector.
From that perspective, a collaborative view of connecting with other fintech hubs across the globe would be more appealing. Creating trade bridges or creating opportunities to connect regulators, industry associations and fintechs with peer groups in other jurisdictions makes sense. It not only provides opportunities to take homegrown tech around the globe, but also attracts innovative ideas that can provide a better experience for Kiwis.
What are some of the challenges to growing Auckland’s fintech industry and what are the solutions?
Auckland does not have the natural geographical advantages of other jurisdictions, such as Singapore and London, which have traditionally been the hub of large-scale financial services. But this also means Auckland and New Zealand have fewer legacy issues to deal with, enabling greater agility in response to emerging tech capabilities and their applications in financial services.
Innovation does not emerge from one intervention at a point in time. The innovator’s journey has multiple touchpoints – the opportunity lies in being able to connect the dots and smooth the path of that product to market journey. Multiple stakeholders can collaborate on providing services that span that innovation continuum. This requires coordination across multiple agencies, both private and public. COFR’s fintech forum is an example, but that addresses only one aspect: regulatory guidance.
There are efforts under way now to connect other services that are relevant to the wider innovation community. Watch this space!
What are some of the advantages of overseas investment in Auckland fintech?
It’s well known that New Zealand ranks highest out of 190 countries on the World Bank’s Ease of Doing Business Index (best for ‘starting a business’ and for ‘access to credit’), and that New Zealand is rated the least corrupt country by Transparency International. Along with our political stability and open economy, these factors rank amongst the highest for the financial services industry.
Other drawcards are our excellent broadband (with 4G almost nationwide and 5G coming in); the investment by major cloud service providers in a New Zealand base of operations; government support for innovative businesses – including New Zealand Trade and Enterprise, Callaghan Innovation, and funding from New Zealand Growth Capital Partners and its ‘Elevate’ partner funds. Then there is the engagement of our eight universities (three of which are in Auckland). New Zealand is also known for its population of early adopters of technology. All these factors add to the advantage of being involved in New Zealand’s fintech ecosystem.
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DISCLAIMER: This article provides general information on potential investment opportunities in Auckland and is not intended to be used as a substitute for financial advice. The views and opinions expressed are those of the relevant author, and do not necessarily reflect the views of Tātaki Auckland Unlimited. Tātaki Auckland Unlimited disclaims all liability in connection with any action that may be taken in reliance of this article, and for any error, deficiency, flaw or omission contained in it.