Mueller Jackson
Jackson Mueller
Associate Director, Center for Financial Markets
Jackson Mueller is an associate director at the Milken Institute's Center for Financial Markets. He focuses on fintech, capital formation policy and financial markets education initiatives. Prior to joining the Institute, Mueller was an assistant vice president at the Securities Industry and Financial Markets Association (SIFMA), where he focused on...
read bio

FinTech in Focus

By: Jackson Mueller
February 15, 2017

Tracking the Incumbents

A few developments among traditional financial providers and those that call themselves FinTechs: First, Nasdaq is reportedly forming a venture capital arm focused on making FinTech investments to support the company’s operations. Second, Wells Fargo is venturing further into artificial intelligence, payments and application program interfaces (APIs). The bank has appointed Danny Peltz, head of treasury management, and Steve Ellis, head of the bank’s innovation team, to manage payments-APIs and artificial intelligence, respectively. Meanwhile, Citigroup is launching a joint effort with Facebook, IBM, Microsoft and various FinTech platforms, called Citi Tech for Integrity Challenge, to combat fraud and bribery in government services. BNP Paribas and RBS have launched FinTech accelerators in Paris, France and Edinburgh, Scotland, respectively, while the American Bankers Association endorsed digital small-business lender Akouba to provide “community and regional banks with a cloud-based, white-label origination and underwriting platform for small-business loans.” On the robo-advisory front, Bank of America launched Merrill Edge Guided Investing last Wednesday, while NatWest plans to launch NatWest Invest later this month.


Greetings, FinTech in Focus readers, where yours truly is trying to figure out whether I am one of the roughly 70 percent of millennials who think they have a high financial literacy IQ or am among the 30 percent who actually do understand basic finance. Never fear, however, as “only” 20 percent of my generation are making hardship withdrawals from their retirement accounts, and 30 percent of us are overdrawing our checking accounts. Let that sink in before you read the following remark from the Bank of England’s Mark Carney: “The spirit of the millennial is better suited to the complex challenges that central bankers face in a risky and uncertain world.” Short everything.

Global Developments

Worldwide: The International Organization of Securities Commissions (IOSCO) published a research report covering certain subsectors of FinTech. It provides an overview of developments in peer-to-peer lending, equity crowdfunding, institutional trading platforms, retail/investment platforms (robo-advisors, etc.) and distributed ledger technology. DLT happens to make up the largest portion of the paper, which identifies the benefits, risks and challenges of each of the above-mentioned models and platforms. Of note, IOSCO seems to take a positive view of equity crowdfunding’s importance to emerging economies and expressed the need for further study of RegTech.

U.S.: Rep. Barry Loudermilk (R-Ga.), serving his first term on the House Financial Services Committee, penned a recent op-ed on the need for financial regulatory reform. In it, he stated that Congress “must also support the growing FinTech (financial technology) economy, which is especially important to Georgia. With technology quickly evolving, we must stay ahead of the curve, providing a stable, friendly environment for this new intersection of technology and finance that has proven to be revolutionary for consumers and businesses.” Georgia’s FinTech ecosystem was profiled roughly a year ago, with the city of Atlanta, also known as “Transaction Alley,” doing the legwork to support FinTech.

Meanwhile, Cross River Bank, RocketLoans and the Boston University Center for Finance, Law and Policy, among others, announced the launch of the Online Lending Policy Institute, which will focus predominantly on marketplace lending. The institute “will announce its broader membership, including many leading industry players, at LendIt 2017, where OLPI will host a day of legal and regulatory panels,” according to the release.

U.K.: Roughly 10 months after the Financial Conduct Authority (FCA) authorized peer-to-peer platforms to offer innovative-finance ISAs (Individual Savings Accounts), Lending Works, the fourth-largest British peer-to-peer lender, is launching the new ISA, beating out RateSetter, Zopa and Funding Circle, which have yet to receive full authorization from the FCA.

Separately, Innovate Finance announced a call for input on an industry-led sandbox initiative. According to the consultation paper, such a sandbox provides “an industry-led collaborative environment which, firstly, enables the validation of innovative product by giving developers access to relevant data, technologies and services and, secondly, allows industry to come together and resolve shared challenges.” The consultation is in response to feedback that indicated FinTech startups were “struggling to access corporate-level prototyping, i.e., sandbox environments,” which led the FCA to invite Innovate Finance to consult on an industry-driven virtual sandbox. The paper says the industry-driven sandbox “could interoperate” with the FCA’s regulatory sandbox and efforts to test third-party access to traditional bank data “but should not be duplicative of their remits.”

Comparing the industry and regulatory sandbox 



The Industry Sandbox aims to create a space for FinTechs and industry players to collaborate on new products and proof of concepts in an “off-market” environment without consumers. There are no regulatory implications from testing off-market, so creating a bespoke regulatory framework is not necessary. The sandbox environment can be used to simulate consumer behavior to test and trial applications to a functional acceptance level desired by the organization using the sandbox.

The Regulatory Sandbox creates a safe space where a FinTech and a limited number of real consumers can engage in an “on-market” trial. Some of the regulatory requirements can be amended to create a bespoke framework for the duration of the trial where the normal regulatory consequences do not apply.

Access to the Industry Sandbox will be tiered and the eligibility criteria is currently under consultation. It is envisioned that there will be wider access to the Industry Sandbox than the Regulatory Sandbox.

Firms wishing to test in the Regulatory Sandbox must meet the FCA’s eligibility criteria. In addition, unauthorized firms wishing to test must gain authorization or be registered with the FCA. Firms must also meet the FCA’s Threshold Conditions in order to be authorized. Firms may also choose to partner with an existing authorized firm for the purpose of a test.

The Industry Sandbox aspires to be a fit-for-purpose environment for a diverse set of stakeholders. That is why The Industry Sandbox Consultation has been focused on collecting industry views before proposing new or existing models or solutions.

The FCA will not provide a “stamp of approval” or a similar type of endorsement for a particular application, product or business model tested in the Regulatory or Industry Sandboxes. The FCA’s engagement with the Industry Sandbox is under consultation.


 Source: Innovate Finance

EU: The European Securities and Markets Authority (ESMA) released a report covering the application of distributed ledger technology to financial markets. According to the report, “ESMA believes that it is premature to fully appreciate the changes that the technology could bring and the regulatory response that may be needed, given that the technology is still evolving and practical applications are limited both in number and scope. In the responses to our DP, ESMA has not identified major impediments in the EU regulatory framework that would prevent the emergence of DLT in the short term.” 

European states: France’s central bank governor, in prepared remarks, said the bank “is testing blockchain technology and is opening a LAB to work with startups; the ACPR [the supervisory body he chairs] has welcomed more than 100 key innovators since the creation of its FinTech Innovation Unit, and has set up a FinTech Forum with the AMF to increase our interaction with innovators.” Separately, the world’s first bitcoin “bank” was unveiled in Austria last week, owned and operated by blockchain startup Bit Trust. In Poland, officials have formally recognized trading and mining of virtual currencies as an economic activity. Georgia became the first national government to commit to using the blockchain to validate government property transactions. Lastly, more than 100 banks in Norway are teaming up behind a payments app to fend off outside tech platforms.

Canada: The last time I visited Montreal it snowed 3 feet and I was stranded in a hotel room with my parents for 24 hours. It was miserable. Getting back to FinTech, EY released recommendations on how to turn Montreal into a FinTech hub. The recommendations are: development of a hub focused on certain FinTech strengths such as data science and artificial intelligence, implementation of a mentoring program supported by financial institutions, implementation of a sandbox to connect FinTechs with regulators, and development of curriculum to promote tech and financial services career paths.

India: Leading Indian bitcoin startups have formed the Virtual Currency Association of India, which could include blockchain companies at a later date. Similarly, the Securities Exchange Board of India is in the process of forming a FinTech advisory committee, which will look into the responsible development of crowdfunding and the mobilization of household savings into financial markets. 

United Arab Emirates: Roughly two weeks after the Dubai Financial Services Authority released a consultation paper covering loan-based crowdfunding to support small and medium enterprise financing, regulatory officials released a second consultation focused on investment-based crowdfunding. As the second consultation notes, the DFSA believes “that it is best to establish a new financial service that directly covers the activities carried out by crowdfunding platforms. As a result, we are proposing to establish a new financial service ‘Operating a Crowdfunding Platform,’ ” which will cover both loan- and investment-based crowdfunding platforms.

Philippines: The country’s central bank has moved forward with adopting a regulatory framework applicable to virtual currencies (VC). As noted in the press release, the framework “does not cover VC creators but only focuses on entities facilitating the conversion or exchange of any VC into fiat currency or vice versa. Such VC exchanges serve as the crucial link of VCs with the financial system.”

Hong Kong and Singapore:The competition over FinTech continues to heat up. Hong Kong officials are not happy with a recent report from Deloitte that puts them three spots behind Singapore among leading FinTech hubs. That discussion (viewable here) led to Hong Kong’s secretary for financial services and the treasury publishing a blog post on efforts to foster and support a mobile payments ecosystem in Hong Kong. Meanwhile, the Hong Kong Securities and Futures Commission has joined the R3 CEV blockchain consortium.

In Singapore, the Committee on the Future Economy released a report containing seven strategies to address the various challenges the country may face as it moves forward in the 21st century. Regarding FinTech in particular, the committee urged the government to design a regulatory environment that supports innovation and risk-taking and in which officials can test innovations through a sandbox approach. To become a global leader in fostering the development of FinTech, Singapore needs to develop into a “Smart Financial Center and create opportunities for efficiency in electronic payments and strengthen Singapore’s ability to finance Asian startups and small and medium enterprises (SMEs).”

China: As the country’s central bank continues to question domestic bitcoin exchanges, the three largest exchanges have stopped user withdrawals as they seek to improve their compliance systems, which could take up to a month at the very least. Interestingly, as certain exchange platforms halt withdrawals, users have flocked to alternative platforms.

Australia: Australia’s Big Four banks are shifting focus in the battle against Apple Pay by dropping their resistance to fees to focus more on Apple Pay’s contactless payments technology. Meanwhile, the Australian Retailers Association continues to throw its weight behind the banks, even as Macquarie and ING Direct confirmed partnerships with Apple Pay.

Another Benchmark

The Cambridge Center for Alternative Finance released its first benchmarking report covering alternative finance in Africa and the Middle East. According to the report, $242 million in online alternative finance funds were raised in 2015, roughly three-quarters of which went to startups and SMEs. Equity-based crowdfunding accounted for nearly 70 percent of total market volume in the Middle East, while microfinance is the leading model in Africa, accounting for less than 45 percent of total market volume. “In Africa, 90 percent of online alternative finance was originated from platforms headquartered outside of the continent, whilst in the Middle East the reverse is true, as 92.6 percent of online funding originated from home-grown platforms headquartered within the region,” the report says.

Internal and external funding sources

02 15 17b  

Source: Cambridge Center for Alternative Finance