Report considers the fintech regulatory landscape in Asia Pacific as well as wider digital financial services opportunities and challenges.
The Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School has today published the report from its “Fintech Regulation in Asia Pacific (APAC)” study, which considers how the challenges and opportunities presented by fintech and Digital Financial Services (DFS) have been responded to by regulatory efforts and innovation initiatives across the region.
Following on from studies covering Sub-Saharan African (SSA) and the Middle East and North Africa (MENA), this is the final study in a series of three that have been foundationally funded by the UK Foreign, Commonwealth & Development Office (FCDO). This study has also been supported by the Asian Development Bank Institute (ADBI) and Invesco.
The report draws on findings from the CCAF’s prior research in the region including the “Global COVID-19 Fintech Regulatory Rapid Assessment Study” and “Regulating Alternative Finance”. It builds on that empirical data by undertaking and combining with a qualitative review of the regulatory frameworks relating to fintech sector activities from 20 sampled jurisdictions in the APAC region.
These fintech sectors included digital payments, international remittances, peer-to-peer (P2P) lending, e-Money, and equity crowdfunding (ECF), as well as cross-sectoral regulatory frameworks covering data protection, cybersecurity, anti-money laundering, consumer protection, open banking and electronic-know your customer (e-KYC).
The study found that the payments, eMoney and remittances sectors have the widest existing regulatory framework coverage in APAC, whilst significant gaps exist with respect to the P2P lending and ECF fintech verticals. This was illustrated by 90% of the sampled jurisdictions having regulatory frameworks established for digital payments – with 55% regulated as part of the wider payments sector through a general regulatory framework and 35% employing a specific digital payments framework. This compares to only 8% of MENA jurisdictions having a specific digital payments regulatory framework
Similarly, 90% of sampled APAC jurisdictions have an established regulatory framework for e-Money – with 55% regulating via a general payments framework, 30% via a specific framework for e-Money and 5% regulating it under another framework.
Only 50% of sampled jurisdictions have a bespoke framework for the regulation of P2P lending with just 6% planning to introduce one. Further, 22% of the sampled jurisdictions have prohibited P2P lending, with another 22% treating it as unregulated or self-regulated.
Turning to cross-sectoral verticals in the region, regulatory frameworks are most common in AML and data protection with almost complete coverage across the sample. Indeed, 65% of sampled jurisdictions have a broad framework for data protection in place, 20% plan to adopt one and 15% have no framework.
Interestingly, 35% of the APAC sample have a regulatory framework in place for open banking and 35% plan to introduce one. Indications are that these low levels of adoption could be related to economic inequality in the region, as according to the World Bank Income Group classification all but two of the existing open banking frameworks in the sample are in high income jurisdictions.
The prevalence of regulatory innovation initiatives is shown to be increasing at pace, with the study revealing a lot of activity over the past two years. This includes 16 jurisdictions with at least one innovation office, up from nine in 2019, 25 jurisdictions with at least one regulatory sandbox, up from 13 in 2019, and finally 15 jurisdictions with at least one active regtech/suptech initiative, up from eight in 2019.
“Across the Asia Pacific region, there has been much variety in the regulatory response to the proliferation of the fintech market, particularly in the introduction of regulatory frameworks and the development of innovation initiatives,” says Professor Robert Wardrop, Director and Co-founder at the CCAF. “Analysis of topical data regarding this regulatory response, as undertaken in this report, allows for regional regulatory benchmarking and knowledge sharing which is relevant to regulators and policy makers alongside the wide range of participants in the wider fintech ecosystem.”
“The UK is delighted to partner on CCAF’s FinTech Regulation in the Asia Pacific (APAC) report, aligning with our efforts to facilitate increased economic resilience and innovation in the region,” says Siân Parkinson, Inclusive Digital Finance Lead, UK FCDO. “We strongly welcome the development of regulation in APAC which balances innovation to encourage financial inclusion with robust consumer protection. In sharing best practice on enabling regulatory environments this report sheds light on the dynamic and evolving landscape of fintech regulation in the region with important evidence and insights to inspire further work on financial innovation.”
“This timely report provides a detailed and comprehensive view of regulation of fintech in the APAC region,” says Peter J. Morgan, Senior Consulting Economist and Vice Chair of Research, Asian Development Bank Institute. “As such, it should become a valuable reference for identifying best practices and understanding the motivations for taking varied approaches under different conditions. It should benefit regulators, business practitioners and scholars in this field.”
“Technology has the capacity to blur and breakdown borders, and regulation reinforces them,” says Dave Dowsett, Invesco Global Head of Technology Strategy and Innovation. “Invesco endeavors to be a world-class, client-centric asset manager, and as such, we see a dichotomy between innovation and the protection of rights for sovereign nations and individual participants, so it’s critical to stay abreast of emerging trends across the fintech space and the corresponding regulatory landscapes to see how they grow and change over time.”
“The fintech regulation in Asia Pacific concludes our three regional reports that aimed to distil regional specific insights in regulatory frameworks,” says Alexander Apostolides, Acting Regulatory Innovation Lead. “This exercise showed the efforts of regulators across APAC, MENA and SSA to create an enabling regulatory environment for fintech and digital financial services and the benefit of creating region centric research. The APAC region is indeed one that indicates a wide diversity of responses to the opportunities and challenges faced by the changes in financial technology.”