Easier FinTech Path to Market

A map of the world, showing the British Empire coloured in red at the end of the nineteenth century. Date: late 19th century

A map of the world, showing the British Empire coloured in red at the end of the nineteenth century. Date: late 19th century

Easier FinTech Path to Market

By Mark Toohey

The Memorandum of Understanding (“MOU”) recently signed between the UK’s Financial Conduct Authority (“FCA”) and the Australian Securities and Investments Commission (“ASIC”) was arguably a world first.

The MOU broke new ground because two major regulatory bodies had agreed to co-operate, share data and recognise each other’s regulatory work.

Under this new agreement, there are huge advantages for a British entity that has passed regulatory muster in the UK and was licensed to operate in that jurisdiction. That entity will be subject to far fewer licensing hurdles if they wish to expand their operations into Australia. It works both ways, and Australian entities will also be given a smoother licensing path if they want to set up shop in the UK.

With the entity’s consent, their regulatory files and the home regulator’s ‘due diligence’ findings on the entity and its business will be passed on to the other jurisdiction. Consequently, most core licensing requirements will be considered met. The focus, quite sensibly, will just be on the discrete differences between the two jurisdictions based on the particular business model that will be deployed.

There are rumblings and commentary about the need to disrupt and innovate within government. Reg 2.0 is the term some apply. There is no doubt regulatory bots are a product that should be developed. Surely improvements would result if ‘disruptive’ thinking was aimed at bureaucracy.

AI can now defeat humans at the ancient game of Go. Though the labyrinth of bureaucracy may be even more complex, surely software could efficiently guide an applicant through the regulatory maze. Coders get ready, this is a new market crying out for clever solutions.

Alas, if implemented, there is a potential threat of packs of displaced and hungry regulatory lawyers roaming the dark alleys of our financial districts.

It is not just technology that needs to be improved though. Regulatory leadership is also required and that is why this step by the FCA and ASIC deserves recognition and praise. It is only stating the obvious to say we live in an increasingly global world. Financial markets long ago ceased to be easily contained within a single jurisdiction. Regulators need to modernise.

The products that will emerge from the FinTech surge could transform national business models and financial systems. It is just possible that a new FinTech Google may evolve and transfix the world with the brilliance of its products and new business model.

The jurisdictions that get in on the ground floor of such these transformative technologies may have an important economic head start.

At the announcement of the MOU in Sydney, Mark Adams, ASIC’s Senior Manager, Strategic Investments, provided some intriguing insights. When questioned about the expansion of this MOU concept to include other jurisdictions, Mr Adams said he was in regular contact with his counterparts in Hong Kong, Singapore and in the United States. He added, it was conceivable that similar arrangements may be reached with Hong Kong and Singapore.

Regulation does have a legitimate role to protect us all from shonky operators, to keep markets more honest and to guard national economies and life savings. However, it can also impede innovation and it can be mind numbingly tedious. That is why this FCA and ASIC innovation is to be heartily commended. Real world savings in both time and money will result from this initiative. The destiny of a venture or its products could be altered by the company’s ability to swiftly expand into new markets.

Here is where it gets really interesting. Part of the reason these jurisdictions are able to communicate so directly is the shared legal and regulatory history. Common law and precedence were the hallmarks of the British legal system that spread across the globe. Though the sun finally did set on the British Empire, its shadow may still influence modern commerce – even at the dawn of the FinTech era. If those four countries were to enter into a similar regulatory compact, it is conceivable that New Zealand and Canada may also be eager to join.

Despite some past ructions regarding tea taxes and other conflicts, the U.S. also shares those same legal and regulatory foundations. Still, it would seem far more complex to get the 51 jurisdictions of the U.S. Government to sign on.

Here is where the Fintech industry needs to take note though. For a long time, we’ve urged American ventures to consider the regulatory advantages of proving their business model in Australia. One regulatory body can license the venture to test their products and business model on a national stage. A great test bed for new ideas.

Once the model is honed and proven to be worthy of substantial investment, it can then be taken to the U.S. and the task of seeking the approval of the 50 states and the federal government can commence.

Reportedly, depending on the complexities of the particular business model, regulatory approval in the U.S. can cost north of $1 million. That is a lot of reasons to have already tested your business model and to have a cost-effective pivot or two (if necessary) in your history. It could cost a CEO’s head to have to change an unworkable model and to then be forced to explain to investors why the company needs to revisit the regulatory quagmire.

This initiative means there is a whole new incentive behind the Plan B path to market. A venture could come to Australia, take advantage of the lower dollar, gain local approval, and then seamlessly grow into the UK market. As Eisenhower knew, it makes a great base for expanding into Europe.

If Hong Kong and Singapore also team up with the FCA and ASIC, then there will also be easy access into two other vibrant financial markets. Operations there could be a beachhead for expansion into China or the rest of Asia.

Regulators are modernising and these changes are creating new strategic opportunities. It will be interesting to see who will seize the opportunity to develop tools that will transform and simplify the regulator’s processes.



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About Mark Toohey

Mark Toohey is an experienced commercial lawyer who has worked with both major law firms and as general counsel in the media, telecommunications, software and IT industries. He has been a lawyer, company director, marketing director, company secretary and entrepreneur. Mark's commercial experience extends way beyond the theoretical. He has helped launch a number of start-up businesses and his hands on experience was gained from negotiating and documenting deals for a wide variety of business initiatives.