Regulatory Lag, Regulatory Friction and Regulatory Transition as FinTech Disenablers: Calibrating an EU Response to the Regulatory Sandbox Phenomenon

Abstract

With transformative evolution involving crypto-assets, machine learning applications and data-driven finance models, complex regulatory and policy issues are emerging. Inadequate frameworks in FinTech markets create regulatory friction and regulatory fragmentation. These limitations continue to feature when piecemeal regulatory transition occurs. The danger of EU Member States being left behind in the FinTech innovation race if the regulatory landscape is cumbersome or incomplete for new business models is real. Regulatory lag and regulatory friction also act as a ‘disenabler’ for ease of cross-border FinTech trade in the EU. This article critically engages with the manner in which the regulatory sandbox has rapidly gained critical mass in Member States as a valuable adaptive measure supporting a route to market for FinTech entrepreneurs. Against the backdrop of the European Commission’s Digital Finance Strategy, the article further advances scholarship on FinTech in the EU by probing the EU’s resulting regulatory dilemma, undertaking a systematic evaluation of the continuum of complex policy options available to the European Union in response to the spreading regulatory sandbox phenomenon.

Navigating the crowdfunding landscape: a study of knowledge trajectories based on main path analysis

“…, 2019). One area of focus within this cluster is the role of fintech in supporting sustainable development (Ahern, 2021; Darmansyah et al. , 2021; Dospinescu et al.…”

“…This implies a growing interest from scholars in examining the potential of CF as a means to support innovation and technology development in the financial sector, particularly in emerging markets such as China (Huang et al, 2018;Xie et al, 2019). One area of focus within this cluster is the role of fintech in supporting sustainable development (Ahern, 2021;Darmansyah et al, 2021;Dospinescu et al, 2021). Keywords such as "sustainable development" and "sharing economy" show a recognition of the potential for fintech to promote more sustainable and equitable economic practices, particularly for SMEs.…”

A European distributed ledger technology pilot regime for market infrastructures: finding a balance between innovation, investor protection and financial stability

“…As financial market infrastructures might be less eager to start experimenting with DLT because of the legal uncertainty related to divergent interpretations of existing legislation, a European sandbox approach seems more suitable compared to an innovation hub. According to Ahern (2021), the DLT pilot regime is not being billed as a sandbox because it is more a formal class of experimental governance where hard law is used to create a temporary exemption regime. Nevertheless, because the entities that can experiment with the DLT pilot regime have to be licensed entities having a national competent authority, regulatory arbitrage could still take place to a certain extent because they are the latter who can decide on which exemptions to grant (see infra).…”

Jurisdictional arbitrage: combatting an inevitable by-product of cryptoasset regulation

“…Currently, the European Commission has taken the lead in the international cryptoasset regulatory arena by proposing its MiCa that certainly forms a measure against regulatory arbitrage, at least, at European Union level. This proposed Regulation supplements existing EU legislation covering financial instruments and electronic money by specifically addressing 3 categories of cryptoassets (utility tokens, e-money tokens and stablecoins) that fall outside its existing regulatory perimeter (Ahern, 2021). Moreover, according to MiCa, crypto-asset service providers wishing to operate in the EU, must fulfil two requirements: they must have a registered office in an EU Member State; and they must acquire an authorisation by a competent national authority (European Commission, 2020b).…”