For fintech firms, navigating the regulatory landscape is akin to being in a dark room. However, there is scope for fintech firms to engage with regulators.
“We know that there are walls but we don’t know how far away they are and if we step, we’re not sure if we’ll step on something,” said Seshree Govender, an associate in the financial regulatory practice at Webber Wentzel.
Presenting at a regulatory hackathon in Johannesburg, she said the state of limbo stems not from regulatory uncertainty but rather that market stakeholders and participants are unsure of how to respond to each other.
The sector is currently unregulated as authorities, both in South Africa and abroad, prefer to monitor developments and foster a greater understanding of underlying technologies before prescribing rules. However, some distribution platforms employed by fintech firms and products on offer may be subject to rules.
As such it is important for fintech firms to “locate themselves” within existing laws and regulatory frameworks.
Based on the services they provide Govender explained that some firms do not have a clear understanding of which laws are applicable to them.
“A lot of companies, not just fintech companies, say ‘I’m providing a financial service and the Consumer Protection Act (CPA) expressly excludes financial services, therefore I’m excluded from the CPA, the CPA is not applicable to me so I don’t have to open the CPA book’.
That’s right. [But] while the financial service is excluded, the [mobile] app that you are providing is not. The app is a consumer product and that is not excluded,” she said.
As the nature of fintech offerings are not necessarily confined to specific sectors, there is also said to be growing cooperation among different regulators to manage overlapping interests.
“Until we get the Financial Sector Regulation (FSR) Bill here, we don’t know which regulator is doing what and the extent to which they collaborate with each other. This lacuna or uncertain space is inversely the best time for fintech companies to engage with the regulator,” she said.
She went on to add that a simple, often overlooked, way in which to engage is by commenting on proposed laws, some of which relate to advancements in technology.
According to her, no fintech companies commented on the draft fit and proper requirements for Financial Advisory and Intermediary Services (FAIS), part of which relates to automated advice.
“All the comments that have come in on robo-advice have come in from the traditional financial companies [such as] insurance and banks, fintech companies don’t comment. So what you have is regulatory instruments that are going out into the environment and that are impacting the fintech industry but not receiving comment as to how,” she said.
Small players in the fintech industry, which have little to no experience in engaging with regulators, have called for regulatory bodies to have patience in dealing with the “uneducated”.