Regulatory adaptation: The changing role of financial sector regulators

Regulatory adaptation: The changing role of financial sector regulators

November 11, 2021    

Considering the changing role of financial regulators and responses to innovation

Innovation creates opportunities, enhances efficiencies, increases competition, drives scale, and improves the reach and value of financial products and services to consumers. For many financial regulators, innovation is a double-edged sword which also brings risk, and due to its novel nature, it is often not effectively accommodated within existing regulatory frameworks.

At the same time, legislations across developing countries are increasingly making innovation or market development an explicit mandate for financial regulators. This means that encouraging innovation is not just a ‘nice to have’ for regulators but a legal requirement. This balancing act is central to supervisors’ day-to-day operations. Yet, few financial regulators across the developing world have the tools or capacity available to either effectively encourage innovation or to navigate this balancing act.

Regulatory sandboxes have sprung up in response to the growing mandate, but these have often not had the desired or expected impact in the developing world. Even with sandboxes or similar tools, regulators still need to grapple with the new emerging risks tied to innovation such as data protection, cybersecurity and AI-driven discrimination.

This session debated the new tools and further adaptations that are required for regulators across different contexts to be appropriately equipped to deal with innovations in their jurisdiction. This was an interactive discussion, where each panelist shared their expertise with limited slides. The bulk of the session was spent addressing the questions to consider to responsibly regulate for innovation.


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