" class="no-js "lang="en-US"> EXCLUSIVE: "Sticks and Carrots" - Fiona McFarlane in 'The Fintech Magazine'
Monday, December 04, 2023

EXCLUSIVE: “Sticks and Carrots” – Fiona McFarlane in ‘The Fintech Magazine’

It sounds obvious, but fintechs don’t behave like incumbent banks. Regulators took a while to catch up with that, though, and when they did, it became something of a battle. Are they all now settling into a productive truce? Fiona McFarlane takes a look at approaches taken by a sample of regulators around the world


The Financial Conduct Authority (FCA) is credited with launching the world’s first regulatory sandbox in 2016 (just pipping Singapore to the post) and has since been steadfast in developing resources to help nurture fintech regulation.

Its success rate in doing so is exceptionally high with data showing that 92 per cent of firms nurtured through its Sandbox receive licence authorisation, as do 98 per cent of those who use its direct support and advisory services, which assist with governance as early as possible to lessen the chance of fines in the future. More than 800 challengers have so far been supported through the Regulatory Sandbox and the FCA’s Innovation Pathways programmes.

Successful participants have included Currensea, Bud and Zilch. The FCA also makes a point of supporting firms on aspects outside of the regulatory perimeter, such as testing new tech or providing a synthetic data sandbox. This gives the regulator a front row seat onto the insights and implications of technologies, which it then uses to better inform policy development.

The FCA is often the front runner in publicly highlighting challenger issues and pitfalls and, if need be, stepping in to protect consumers. It did exactly that with buy now, pay later lender Klarna in 2020, to change what it saw as unfair terms and conditions.


Germany is one of the few European countries with no sandbox or formal approach to supporting fintech companies.

One of two banking supervisory authorities in Germany, BaFin treats them on par with traditional banks and requests either a full banking license or a combination of specific permits in order to operate. Regardless, BaFin is a supervisor of choice for challengers, both for unicorn successes such as N26, and memorable flops like Wirecard or Greensill Bank AG.

It audits frequently and deals heavy-duty restrictions when needed, as has happened recently with both N26 and Solaris Bank.


The US regulatory landscape has 50 independent legislation bodies, 10 stand-alone sandboxes, and a meshwork of overseeing agencies.

The lack of unity makes it hard for startups to test products across more than one state at a time. Although improving, the US is criticised for being overly cautious with innovation, and taking a harder line with fintechs that with established banks.

The federal nature of the system results in some interesting conflicts. In July this year, for instance, the state of New York’s regulator sued the Federal Reserve to void its decision to award national bank charters to online lenders and payment companies, saying it was unconstitutional and put vulnerable consumers at risk. And banking app Chime, whose accounts are FDIC-insured, was harassed by state regulators in 2020 who tried to ban it from using the term ‘bank’ and ‘banking’ in its marketing materials and website.


Thanks to its fintech-friendly environment, BoL oversees 147 licensed fintechs, the largest cohort in the EU.

The regulator has gradually required a reputation for being efficient, transparent, and fair. Many would-be neos have sought licences via the Lithuanian regulator, including UK challenger Revolut.

While BoL typically prefers dolling out fines (18 so far this year, totalling €1,719,000) and warnings to taking disciplinary action, it is unafraid to suspend managers and revoke licences when startups act recklessly. A case in point is PayrNet (the former subsidiary of UK fintech Railsr, whose licence BoL revoked in June this year following what it believed were ‘serious, systemic’ failures.


Singaporean regulations were, until relatively recently, too stringent for digital banks to launch, despite having a regulatory sandbox since 2016 to encourage them to explore new technology and business models.

MAS turned a corner in 2020, unveiling two types of digital bank licence. But the requirements needed to apply are tough (such as applicants having a minimum net worth of USD $100million).

While there are several out-of-country challengers operating in Singapore, to date MAS has only granted five local licenses, each to a company with the backing of either an established big tech, large financial institution, or Chinese corporations.


This article was published in The Fintech Magazine Issue 29, Page 79

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