By Erica Vambell

 

Fintech, or financial technology, applies to any part of a financial transaction that uses digital technology, such as cryptocurrency, digital cash, payment processing operators, smart contracts, crowdfunding, regulatory sandboxes, and digital banking. For developing countries, Fintech promises and delivers on improving financial inclusion, allowing millions of people to establish bank accounts, save money, and gain access to credit. In this webinar, Nicholas Klissas, Digital Regulatory Reform Specialist at USAID, speaks with Vanessa Rubio, professor of practice at the School of Public Policy, London School of Economics and former Deputy Finance Minister of Mexico, and Imansyah, Deputy Commissioner of OJK Institute and Digital Finance at Indonesia Financial Services Authority, to learn more about the process of establishing fintech laws in Mexico and Indonesia in recent years.

 

Mexico

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Vanessa Rubio was in charge of developing the Fintech Law in her native Mexico between 2017 and 2018 while holding the position of Deputy Finance Minister. She detailed the process that Mexico’s regulators went through when developing the law, and gave her recommendations to policymakers looking to implement their own fintech laws. 

 

In Mexico, the government asked themselves whether the existing regulation was enough to properly regulate the emerging fintech industry, or should there be a separate ad hoc regulation just for fintech? Amidst structural reforms in the financial, education and energy sectors that were happening in the country at the time, the government decided to also create a new fintech law that would allow for innovation and would give way to a solid and deeper fintech industry. The process entailed learning more about the sector, talking to different stakeholders, and getting more information from relevant international organizations, central banks, and ministries of finance to understand what they were doing in fintech regulation. After this assessment, the government moved forward with ad hoc regulation for the sector- based on two principles: how to achieve innovation, and how to protect consumers, aiming to strike a balance between these two.

 

Regulators ultimately agreed on a series of five principles for the new law: inclusion and innovation, consumer protection, financial stability, competition, and prevention of illicit operations/integrity of the financial system. There were four main elements: crowdfunding, e-money, virtual assets, and a regulatory sandbox.

 

Vanessa’s recommendations to other regulators and policymakers include: understand the system and the government's role and capabilities; align the authorities in terms of the vision/objectives of what to achieve through the regulation; match regulatory ambitions with resources that are available to perform the task at hand; and prevent crisis but also be prepared to manage crisis.

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Indonesia

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Imansyah, the Deputy Commissioner of OJK Institute and Digital Finance for the Indonesia Financial Services Authority, is responsible for capacity building for the financial sector including research and works related to digitalization. With a background in the banking industry, Imansyah had to change his mindset when moving to the fintech world, echoing Vanessa’s points that he realized it is necessary to balance innovation with protecting the consumer, and safeguarding the financial system’s stability.

 

In 2016 in Indonesia, the first fintech era regulations were published on P2P lending and later there was regulation for digital banking and securities core funding. Imansyah detailed that one of Indonesia’s driving factors for wanting to make progress in this area was that due to Indonesia’s geography of having 70,000 islands, the country saw opportunities in branchless banking, and not relying on physical presence of banks, in order to reduce the costs of business. Branchless banking and now fintech helps to support financial inclusion. However he also noted that it is very important at the same time to improve financial literacy. More people have more access to financial products which is good progress towards financial inclusion, but the people need to understand these products to be aware of both the benefits and the risks.

 

Some of Imansyah’s recommendations include the need for collaboration and cooperation amongst government agencies, ensuring protection of customer data, and for the government to be able to adapt and prepare themselves well for a fast moving and evolving sector like fintech.

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Watch the video above to learn more from Vanessa and Imansyah.

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