In Asia Pacific (APAC), regulators have been redrawing the regulatory perimeter to take account of new products and services emerging as a result of fintech innovation and emerging technologies.
But with COVID-19 accelerating the adoption of digital financial services, financial regulators have moved fintech up the regulatory agenda, responding to the trend with a number of measures, according to a new study by the Cambridge Centre for Alternative Finance (CCAF), a research institute part of the Cambridge Judge Business School of the University of Cambridge in the UK.
The Fintech Regulation in Asia Pacific (APAC) report reviews how regulators in APAC have responded to the opportunities and challenges associated with fintech and digital financial services through regulatory efforts and processes, as well as innovation initiatives.
The study draws on data from two surveys issued to a select number of regulators and encompasses a qualitative review of regulatory frameworks relating to fintech activities in 20 sampled jurisdictions across APAC.
It is the third in a series of three studies exploring regional fintech regulatory landscapes and follows on from published reports for the Middle East and North African (MENA) and Sub-Saharan Africa (SSA) regions.
According to the report, the COVID-19 pandemic has accelerated the adoption of fintech in APAC. In response, financial regulators have increased the regulatory priority of the sector, and launched a number of measures, focusing primarily on ensuring economic relief (50%), cybersecurity (50%), customer onboarding and due diligence (44%), and business continuity (44%).
Looking at regulatory innovation initiatives, the study found a significant increase in the number of regulatory sandboxes, innovation offices, as well as regtech and suptech initiatives in 2022, compared to the previous mapping conducted by CCAF in 2019.
In 2019, only 13 regulatory sandboxes were identified as operational in APAC. As of early 2022, 25 jurisdictions had at least one operational regulatory sandbox. 11% of respondents indicated having introduced a regulatory sandbox during the pandemic, while 37% said they had accelerated their sandbox initiative during the period, indicating that COVID-19 has played a catalytic role in the establishment of regulatory sandboxes.
Similarly, the number of jurisdictions with innovation offices in place increased from nine in 2019 to 16 in 2022. 40% of sampled APAC jurisdictions that responded to the survey indicated that the COVID-19 pandemic has accelerated their planned innovation office initiatives.
As of regtech and suptech, the study found that the number of initiatives has almost doubled in the last two to three years, rising from eight initiatives in 2019 to 15 in early 2022.
Fintech regulations across APAC
Looking at existing fintech-specific regulations in place, the findings indicate that the digital payments, e-money and remittances sectors have the widest coverage in APAC, with more than 80% of sampled jurisdictions in the region having frameworks in place for each sector.
Equity crowdfunding and peer-to-peer (P2P) lending are other widely covered sectors, with 78% and 50% of sampled jurisdictions in APAC, respectively, having frameworks in place.
Four jurisdictions are planning to introduce a further five frameworks across fintech verticals: Pakistan is planning to introduce a P2P lending framework, Fiji is planning to introduce an equity crowdfunding framework, Nepal wants to introduce an remittance framework, and the Marshall Islands are looking to introduce frameworks covering payments and e-money.
Open banking is another emerging trend which regulators across the region are increasingly looking into. Australia, Singapore, Hong Kong, India and Japan are amongst the seven countries in APAC with an open banking framework in place. China, Indonesia, Malaysia, the Philippines, and Thailand are amongst the seven jurisdictions looking to introduce one.
Looking at cross-sector verticals, the study found that regulatory frameworks in the anti-money laundering (AML) and data protection verticals are the most prevalent, with nearly complete coverage across the sample. In contrast, electronic know-your-customer (eKYC) has the greatest instances of missing regulatory frameworks, with only 12 jurisdictions having this in place.
Of the sampled APAC jurisdictions, Pakistan, Australia, Taiwan, China, Japan, Hong Kong, Thailand, New Zealand and Malaysia have frameworks in place for all investigated cross-sectoral issues, namely eKYC, data protection, AML, consumer protection and cybersecurity.
Bhutan is planning to implement AML and eKYC frameworks; India is planning to introduce a data protection framework; Indonesia, the Philippines and Samoa are looking to introduce cybersecurity frameworks; Sri Lanka and Singapore are planning to implement an eKYC framework; and the Marshall Islands are looking to introduce a consumer protection framework.
Featured image credit: Freepik
