IOSCO Consults on Recommendations for Use of Innovation Facilitators
The International Organization of Securities Commissions (IOSCO) is seeking feedback on the proposed recommendations on the use of innovation facilitators in growth and emerging markets. The consultation report covers three types of innovation facilitators—innovation hubs, regulatory sandboxes, and regulatory accelerators—and proposes four recommendations for emerging market member jurisdictions to consider when setting up innovation facilitators. The report also includes a decision tree for regulators to consider when looking at establishing an innovation facilitator and assessing the type of innovation facilitator to set up. The comment period on the consultation report ends on February 06, 2022.
The emergence of fintech not only has the potential to improve outcomes for investors and consumers of financial services but can also help to solve complex regulatory problems, including using regtech and suptech to enhance risk management, compliance, and supervision. However, fintech also creates new challenges for financial regulators. Thus, regulators need to be innovative and review the perimeter of regulation or adapt the existing regulations and supervisory tools as well as develop new ways of cooperation among a wider range of authorities. From this perspective, the IOSCO report, to which the Growth and Emerging Markets Committee (GEMC) contributed, highlights the increasingly important synergy between fintech and securities market regulation and describes the impact fintech has on investors and financial services. It also highlights the possibility that fintech may have a greater impact on emerging markets due to their lack of legacy systems, combined with the potential to bring about greater financial inclusion. The report notes that innovation hubs and regulatory sandboxes may provide regulators with additional market intelligence and can constitute a source for understanding potential risks and their mitigating elements. Also, innovation hubs and regulatory sandboxes provide a channel for the industry and innovators to establish fruitful relationships with regulators, thus facilitating a context for a mutual understanding.
The consultation report found that a regulatory response to financial innovation requires a balanced approach between the potential opportunities of innovation against the risks for investors, the integrity of markets, and the stability of the financial system. The main challenge for the relevant authorities refers to the development of new methods of identifying, monitoring, and addressing the emerging risks in the financial system. Relevant authorities should consider the steps laid out in the decision tree presented in the report (refer to Chapter 5) before setting up any innovation facilitators. In doing so, the relevant authorities should consider their objectives, scope of regulatory options, and available resources as well as the characteristics of the ecosystem in which financial innovation is taking place. The recommendations proposed in the consultation paper cover four areas:
- Considerations prior to the establishment of innovation facilitators
- Definition and disclosure of objectives and functions of innovation facilitators
- Defined eligible entities and the criteria for application
- Mechanisms for cooperation and exchange of information with both local and foreign relevant authorities
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Comment Due Date: February 06, 2022
Keywords: International, Banking, Insurance, Securities, Fintech, Regtech, Suptech, Innovation Facilitators, Regulatory Sandbox, Innovation Hubs, Regulatory Accelerators, Emerging Markets, IOSCO
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