Daniel Gorfine
Adjunct Fellow; Vice President, External Affairs and Associate General Counsel, OnDeck
Capital Access and Capital Markets and Demographics and FinTech and Global Economy and Public Policy
Daniel Gorfine is an adjunct fellow at the Milken Institute and vice president, external affairs and associate general counsel at OnDeck, a technology-based company focused on transforming small business lending.
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21st century FinTech market and policy developments

By: Daniel Gorfine
October 03, 2014

This week the Milken Institute Center for Financial Markets, along with diverse FinTech stakeholder groups, launched its newest program, FinTech: 21st Century Market and Policy Developments. We are responding to policy needs emerging from the growing number of new financial technologies – FinTech – and their effect on traditional financial markets and services. We will help develop policy frameworks and regulatory approaches that responsibly facilitate FinTech development. 

From new digital payment systems and the use of digital or electronic currencies to the use of data analytics and the creation of online investment and finance platforms, FinTech developments are already making an impact on traditional financial markets and services. Innovations are reshaping, at times fundamentally, how markets are structured, how investors receive and use information, how customers receive and use financial services, and how companies gain access to and use capital.

Global investment in FinTech has risen dramatically from just under $1 billion in 2009 to more than $3 billion in 2013, with London, New York, and Silicon Valley serving as the leading hot spots for FinTech development. U.S. FinTech firms received 83% of global investment in the sector in 2013, but other countries are not sitting idle. In recent months, the UK Government has outlined its approach to promoting its FinTech industry, with UK Chancellor of the Exchequer George Osborne championing the campaign. Overall, global investment in FinTech is expected to surpass $8 billion by 2018.

Although all innovation owes a debt to the past, a strong case can be made that there is something different about these new technologies. It’s time to rethink regulatory processes and approaches, given these characteristics of the industry:

  1. The rapidly evolving nature and pace of innovation and adoption
  2. Disintermediation and changing nature of traditional gatekeepers/institutions
  3. Industry convergence
  4. Low costs and barriers to entry
  5. The borderless Internet/digital economy
  6. Democratization of financial and investment opportunity

With these traits in mind, we are working to create a menu of regulatory approaches, principles and processes that will form a 21st-Century Regulator’s Toolkit that can flexibly be applied to various FinTech sectors in order to better ensure market integrity, capital formation, and investor/consumer protection. We will not proclaim absolute policy prescriptions, which are rarely possible in a world of dynamic, ever-changing markets. Instead we are thinking about tools that promote greater regulatory agility and iteration, closer measurement and satisfaction of regulatory outcomes and goals, and increased space for regulatory and FinTech innovation.

In coming weeks, we will release our newest paper on these topics, FinTech: Building a 21st-Century Regulator’s Toolkit, where we will outline alternative policy frameworks and regulatory approaches and explore related regulatory trade-offs. This is intended to be a starting point for more robust consideration of a modern theory of regulation suited to efficiently and effectively satisfy core regulatory objectives and responsibly facilitate FinTech development.

Stay tuned.