Selected Publications: FinTech and the Innovation Trilemma

10. Februar 2021, von Alessio Azzutti

Foto: Miltiadis Fragkidis

In a recent article, "FinTech and the Innovation Trilemma," Chris Brummer and Yesha Yadav discuss the challenges brought by financial technology and innovation for financial regulators worldwide when dealing with regulating new business models and financial services to achieve broader financial law goals of market integrity, legal simplicity, and financial innovation. The authors develop a novel theoretical framework to assist financial regulators in understanding the emerging FinTech industry, their peculiarities and specific risks, for ensuring better regulation. Specifically, they argue that in striving to achieve effective supervision of FinTech by relying upon traditional regulatory approaches (e.g. ‘command-and-control’), financial law and regulation frequently fall short. Indeed, whenever policymakers have attempted to achieve both market integrity and legal simplicity, while also fostering competition, they have only reached two out of three policy goals at best (i.e. FinTech policy trilemma).  

The challenges of regulating FinTech are undoubtedly unique, e.g. the governance of new technology (e.g. ‘machine learning’, Big Data) considering its vast and diverse application scope and new and emerging risks both in terms of consumer protection, competition, and financial stability. While regulators are exploring the merits of innovative regulatory solutions (e.g. sandboxes), which aim at reducing their knowledge gap, there is still room for improving the regulation of FinTech. Specifically, to further tackle the FinTech knowledge problem, Brummer and Yadav call for increased cooperation at both national and supranational level among public authorities to promote greater information generation and sharing mechanisms. Moreover, they also argue for delegating more supervisory responsibilities directly to private actors, by enhanced self-regulation that can complement public oversight, thus leading to a new culture of public-private partnerships.

By the way, next week, Thursday, February 18, Professor Yesha Yadav will join us for our next LFT workshop. If you want to debate these ideas with her and us, don't forget to register here.