FinTech Market Development Perspectives

By Ryabova, A., and Kalmykova, E., (Tomsk Polytechnic University)

Fast development of technologies has led to emergence of the new market – FinTech – which is very attractive for investors today. By now this market has a great number of different concepts: P2P-crediting, E-wallets, Bitcoins, mPOS-acquiring, T-commerce, mobile banks, etc. Many of these tools have already heavily entered our ordinary life. People can obtain any credits through special services on the Internet from other users without participation of banks, pay by credit card using mobile devices, and get information about expenses and incomes according to the card anywhere in the world.

Users do not need to go to banks anymore and to spend their time for credit

arrangements, currency exchange, to look for ATMs to remove cash. Purchases on the Internet can be paid not only in rubles, but also in new digital currency. These tools make life easier, however, they pose a serious threat for banks. Now, bank institutions should

create more convenient and utility services for the clients to keep clients. Therefore, bank and credit systems start to change actively.


Legal difficulties

In spite of the fact that fintech market is spreading quickly today and there are many new start-ups every month, there is still no legal regulation by the government. Financial technologies develop so fast that it is difficult to manage all its innovative features in case
of legal control. However, it is a problem not only for government but for start-upers and customers as well. Thus, fintech regulation is becoming a global issue. Today many countries have special institutes to control firms on the financial market. For example, in
the UK there is Financial Conduct Authority (FCA), an independent non-government body. FCA has the power to regulate firms in the financial sector and its responsibilities are applying standards and requirements for financial products, regulating marketing and financial products’ conduct, investigating firms and applying bans where they seem to be appropriate. It regulates such players of the market as banks, credit companies, mutual
societies and financial advisors. Thereby it is free to control some of fintech start-ups.
The UK regulates certain activities conducted in relation to a range of payment, investment and lending propositions, which means, as a general rule, a FinTech business needs to consider at an early stage whether it requires regulatory approval to conduct business in the UK. A surprising range of business models need regulatory approval to operate in the UK – even when they are not based in the UK.

The FCA’s application process, if managed well, need not be overly complicated or intrusive. The typical authorization timeframe with appropriate resources in place can comprise a six-week pre-submission preparation period, followed by a statutory postsubmission period (of up to six months) for FCA to consider the application.

Regarding the USA, there are other instruments of regulation. The U.S. Securities and Exchange Commission (SEC), for instance, is an agency of the U.S. federal government, which is the main control authority within securities market in the United States. It holds primary responsibility for enforcing the federal securities laws, proposing securities rules, regulating the securities industry and so on. One of acts enforced by SEC is the Securities Act of 1933, a federal act according to which investors can be informed about investments and which allows establishing laws against misrepresentation and fraudulent activities in the securities markets. For companies working with investments, the Act should be very important, because in case of its breach a company would face not only civil, but also criminal charges. In that way, lending companies, such as “Prosper” or “Lending Club”, had to register securities with SEC, because in 2008 SEC decided their activities to be in violation of the Securities Act of 1993 – the peer-to-peer loans the companies provided to earn a profit in the form of interest were at a rate higher than that available from depository accounts at financial institutions. Last year SEC announced a new set of rules implementing Title IV of the JOBS Act or the Jumpstart Our Business Startups Act, which intend to encourage funding of the U.S. small businesses by easing various securities regulations. These new rulings will be done initially through what are called Regulation A+ investment offerings. According to this fact, now, more people can take part in early-stage investment, and companies are able to increase their capital with less regulatory burdens. For FinTech market, these rules are really important and very helpful when developing new platforms. Thus, fintech startups will be responsible for
complying with the regulations but with no case law yet to guide them while investors will still be limited in how much they can invest and with whom. Apart from SEC, there is also Financial Industry Regulatory Authority, Inc. (FINRA) which regulates the members of brokerage firms and exchange markets. Contrary to SEC, FINRA is a non-governmental
organization and, moreover, it is the successor to the National Association of Securities Dealers (NASD) and regulation of the members’ enforcement and arbitration
operations of the New York Stock Exchange. When considering loaning money to individuals whether as a creditor or within the investment process, lending laws appear. Usually these laws are set at the state level, and they restrict such actions as who you can lend to, how much you can lend and the interest rates charged to borrowers. Each fintech startup in the USA should take care to comply with lending laws that go
hand in hand with securities regulations. Unfortunately, Russia has still no legal regulation of fintech. It is connected to its later coming to the Russian market. Nevertheless, the Central Bank is an active participant of fintech development in Russia. At the same time, the most attractive and challenging fintech project for the Central Bank is Bitcoin, of course. Firstly, the Bank wanted to abolish the digital currency and make using Bitcoin punishable by law. Then the Bank decided to explore the possibilities and boundaries of the Bitcoin technology. Some time ago, the Central Bank announced that it wanted to be a part of Fintech evaluation in Russia. It has already set up a taskforce for the sole purpose of exploring what can be done in the short and long run. The taskforce will hold regular meetings to discuss the technologies they discovered and in what way they can
be useful to the Bank of Russia. Today it is also creating a self-regulating board that allows industry players to collaborate on fintech efforts with others.

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