How should fintech be regulated?
Congress should consider allowing state and federal regulators to set up “regulatory sandboxes” to allow limited trials of innovative products, law professors and academics said Tuesday.
In testimony before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit during a hearing to examine opportunities and challenges in the fintech marketplace, Brian Knight, director of the Program on Financial Regulation at the Mercatus Center at George Mason University, opined that lawmakers could allow firms that participate in a regulatory sandbox program and comply with its requirements to avoid liability as long as the firm makes “customers whole if the firm causes harm owing to a violation of the law.”
The United Kingdom Financial Conduct Authority, Knight said, is credited with launching the first regulatory sandbox for fintech in 2015.
Adam J. Levitin, professor of law at Georgetown University Law Center, agreed that such a sandbox could allow companies to “try new things out with the understanding that customers must be protected.”
Having said that, however, the “fragmentation of the regulatory system [around fintech] makes it hard for experimentation,” Levitin added.
“We need to regulate to the risk,” Levitin continued, noting the risks in initial coin offerings.