As this blog often points out, anyone who follows trends in the fintech industry knows the fintech revolution isn’t slowing down any time soon. On the contrary, recent developments indicate this particular tech revolution has just begun.
Consider the example of a recent deal struck between regulatory bodies in New York and France. This deal’s main purpose is to facilitate easier entry into new markets for fintech startups.
Background: Fintech in New York and France
New York is a major center for fintech in the US and internationally, which should be no surprise given its proximity to the Wall Street financial ecosystem. NYC is home to both home-grown fintech startups and Silicon Valley companies seeking a presence in this global finance capital.
The European fintech ecosystem is growing as well. In 2018, investments in European fintech companies exceeded $34 billion. Last year, five European fintech companies—Revolut, Monzo, TransferWise, Klarna, and N26—were identified as “unicorns”; each was valued at least $1 billion. This growth of fintech on the continent is supported by the European Union’s Payment Services Directive (PSD2). One of the goals of this directive was to increase participation of non-banks in the payments industry.
Within Europe, the UK overshadows France as a fintech hub, but the French fintech industry has shown strong growth. Fintech investment grew 185% from 2016 through 2018. Fintech startups in France raised $700 million in funding in 2019. The Paris Fintech Forum is now a major event for the industry in Europe.
Some observers have noted that, particularly since Brexit, France has made it clear that it wants a leading role in the European fintech scene. Among other initiatives, the government has created a fintech innovation hub and announced special services for fintech companies via its Autorité des Marchés Financiers, its stock market regulator.
Wherever they’re located, startups in the fintech sector face a challenge that fledgling companies in many other industries do not: finance is heavily regulated. In the US, these regulations exist at the state and national levels. This can make it difficult for some fintech companies to get off the ground.
Against this backdrop, the New York State Department of Financial Services (NYDFS) and the French Autorité de Contrôle Prudentiel et de Résolution (ACPR) have both agreed to a memorandum of understanding (MoU).
The deal should theoretically allow France and New York to become even more attractive regions for those interested in starting fintech companies. The intent of the MoU is help new startups enter the market more quickly in New York and France, and to remove barriers to those companies seeking to operate interchangeably in both jurisdictions. The MoU is also designed to increase development of the French and New York financial services markets in general, promote healthy competition, and enhance consumer protection and access to fintech products.
This is the first agreement ACPR has signed with an American authority regarding fintech, though it has also signed cooperative agreements with fintech regulators in Japan, Hong Kong, Korea, Singapore, and Taiwan. Last year, NYDFS inked a fintech cooperation agreement with Israeli regulators.
Sharing Regulatory Best Practices
Fintech companies have innovated at a fast pace. Although this has been a boon for consumers, it’s also presented challenges.
Startups and the fintech industry have at times struggled to understand the best ways to navigate applicable regulations. Although some have bypassed this problem by partnering with traditional financial institutions that have experience with complex regulatory compliance, that hasn’t been an option for all startups. Some can’t find partners to work with them. Others prefer to maintain their independence.
This recent agreement may help. It will allow regulators to refer fintech companies to each other, to share regulatory and other policy best practices, with the goal of supporting innovation and speed to market for new companies.
Committing to Innovation
The significance of this agreement shouldn’t be overlooked. Understanding and complying with regulations takes time and money, so it’s not uncommon for innovators to perceive regulators as the “bad guys” getting in their way.
That’s not necessarily the case. Regulators exist to protect consumers and create a more even playing field. However, that doesn’t mean they don’t support innovation at all.
This deal illustrates that key truth. Instead of taking steps to slow fintech down, regulators in New York and France have taken a major step to speed up innovation in both jurisdictions.
That said, it’s important to remember that this agreement was only signed on June 3 of this year. We’ve yet to see how it will impact the fintech industry in the long run. If it does yield benefits for both fintech and consumers, however, hopefully regulatory bodies in other states and countries will follow the example New York, France, and other jurisdictions have set. Greater cooperation and alignment among regulators can facilitate the industry’s global growth.