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IMF Policy Paper – The Bali Fintech Agenda – Part 2

In this article the TTSEC will continue its deliberations on the IMF Policy Paper – The Bali Fintech Agenda dated October 11, 2018 which identified key considerations for policymakers regarding implementation of Fintech policies. The IMF policy paper essentially provided a blueprint for successfully harnessing Fintech opportunities, by providing a framework for countries to assess their policy options and adapt them to their own circumstances. The following are three (3) out of the twelve (12) considerations along with a brief description on how the TTSEC will assist the local securities industry in complying with the requirements.

Foster Fintech to promote financial inclusion and develop financial markets.

The securities market of Trinidad and Tobago has benefited from a high level of public participation in the Collective Investment Scheme (“CIS”)/mutual fund industry. With approximately TT $50 billion of assets under management, the CIS product has performed successfully.  However, the local stock exchange has not seen/experienced similar success. Out of a population of 1.4 million there are approximately 73,000 brokerage accounts, consisting of active and non-active traders along with retail and institutional clients. In 2018 approximately 45 trades occurred daily on the Trinidad and Tobago Stock Exchange (“TTSE”).

Digital financial inclusion involves the deployment of the cost-saving digital means to reach currently financially excluded and underserved populations with a range of formal financial services suited to their needs that are responsibly delivered at a cost affordable to customers and sustainable for providers (The World Bank). The TTSEC sees the use of Fintech as an opportunity to assist in stimulating interest and demand in the TTSE; as well as overcoming the challenges of reaching customers and providing information to the market. The consequential development of the securities industry will benefit both the TTSE and the economy. Increased market activity will improve liquidity and improve confidence in equity valuations, which can encourage more businesses to list on the TTSE when seeking capital for further growth and development.

The TTSEC has embarked on several projects geared towards increasing financial literacy and is fostering relationships with registrants to assist in closing the educational gaps in the securities industry. Investor Education seminars and symposiums are held periodically to educate the public about investing.

The TTSEC acknowledges Fintech’s benefits regarding expansion of access, reducing cost and increasing transaction convenience.  Fintech products/services offer alternative means of funding to businesses, such as crowdfunding and peer-to-peer lending, which can be provided by both local and foreign institutions. The government of Trinidad and Tobago has established the International Financial Corporation (“IFC”) to promote the ease of doing business in the country, and to assist foreign companies in setting up and understanding their regulatory obligations, this auger well for the fostering of Fintech to promote financial inclusion and develop financial markets.

The move to digitised government payments is essential to fostering Fintech to promote financial inclusion and develop financial markets. This will enhance trust and improve public confidence in Fintech products/services, as digitized payments coupled with digital IDs can reduce fraud and tax evasion. However, implementation of the aforementioned is dependent on government’s initiative.

Monitor developments closely to deepen understanding of evolving financial systems.

It is noted that when the TTSEC undertook the Fintech Policy development project, information regarding Fintech products/services within the securities industry did not exist. In order to ascertain the scope of the issue and its impact on the industry, the TTSEC embarked upon a data gathering exercise to determine the types of Fintech products and services currently available and in use in the country.  The TTSEC issued a public statement, via print and electronic and social media, inviting Fintech companies/providers and persons conducting, or contemplating conducting activities involving Fintech, to meet with the TTSEC. Based on the information received from the data gathering exercise the TTSEC intends to develop a framework to support effective oversight of Fintech products/services.  

Adapt regulatory framework and supervisory practices for orderly development and stability of the financial system.

Can the TTSEC Regulate Fintech Products/Services? The answer is Yes. According to the SA 2012 section 6(c), the TTSEC is authorised to register, authorise or regulate, in accordance with this Act, self-regulatory organisations, broker-dealers, registered representatives, underwriters, issuers and investment advisers, and control and supervise their activities with a view to maintaining proper standards of conduct and professionalism in the securities industry. Essentially Fintech products and services will be reviewed and registered under the current registrant categories as per the SA 2012. However, there may be a need to amend legislation when Fintech products/services do not fit into any of the categories provided by the SA 2012. The TTSEC will utilise a combined Innovation Hub and Regulatory Sandbox as the main tool to assess Fintech products and services and determine the best regulatory approach.

Innovation Hub and Regulatory SandboxAn innovation hub generally refers to a regulator-provided knowledge centre open to regulated and unregulated entities (Michael Wechler, Leon Perlman, Nora Gurung 2018). Ideally, the hub facilitates innovation by acting as a connection point between regulators and the industry. Innovators may receive guidance, advice and assistance from hub staff, third party experts or other experienced parties regarding matters such as legal and policy issues, licensing issues and navigating a complex legal and regulatory system. The hub can also serve as an opportunity for regulators to learn more about the industry through direct interaction.

The TTSEC currently utilises most aspects of an innovation hub by engaging with current and potential registrants to understand their business models and to determine the best approach to regulating the business and its activities.

(Lauer 2017) stated that a regulatory sandbox is a framework set up by a financial sector regulator to allow small scale, live testing of innovations by private firms in a controlled environment (operating under a special exemption, allowance, or other limited time-bound exception) under the regulators supervision.

Essentially, the TTSEC will require Fintech providers to present their business models which staff will analyse for a better understanding of the product/service. Once this phase is completed, the TTSEC will identify the regulatory requirements and determine provider’s eligibility to participate in the regulatory sandbox. The TTSEC will issue a separate regulatory sandbox framework providing information on the sandbox process including information on application, selection, testing and exit.

The TTSEC aims to ensure that its Fintech regulatory framework provides trust, confidence and a supporting environment for innovation. The framework will reduce regulatory uncertainty and support the safe entry of new products, activities and intermediaries.