12 ASIAN LEGAL BUSINESS – AUGUST 2023 WWW.LEGALBUSINESSONLINE.COM As digitalisation continues to grow in Southeast Asia, regulators have to launch suitable legal and regulatory frameworks. However, they will also face several key obstacles in achieving a balance between innovation and regulation that safeguards consumers. “From a regulator’s perspective, the challenge lies in information asymmetry given the many complex attributes of these novel business models, and financial products that blur the boundaries between traditional and innovative ways of doing business whether it involves banking, investments, lending, payments, currency or other fintech,” says Kristine T. Torres, junior partner at Gorriceta Africa Cauton & Saavedra in the Philippines. Torres notes that regulators are faced with the difficult task of identifying and predicting the various new and intricate risks presented by digitalisation. They must also quickly learn how to regulate these risks effectively. Although regulators strive to align their policies and regulations with the best international standards, they cannot simply adopt them without taking into account the differences in implementation when applied to various types of innovations or countries. As fintech innovations often outpace the development of regulatory frameworks, regulators must stay updated on emerging technologies and business models to effectively address potential risks and consumer protection issues, according to Azmul Haque, founder and managing director at Singapore’s Collyer Law. With many fintech companies operating across multiple Southeast Asian countries, regulators face a difficult task of coordinating and harmonising regulations to ensure consistency and effective oversight. Finding balance between innovation and compliance can be challenging, according to Haque. Too much regulation can impede fintech progress, which may prevent consumers from enjoying the full benefits of these advancements. It is crucial to strike the right balance that fosters innovation while also ensuring compliance with consumer protection standards. “Addressing these challenges requires a dynamic and adaptive regulatory approach that fosters innovation while prioritising consumer protection and maintaining financial stability. Regulators must be proactive in their efforts to monitor the evolving fintech landscape and adjust their policies accordingly to create a sustainable and safe fintech ecosystem in Southeast Asia,” Haque tells ALB. According to Athistha (Nop) Chitranukroh, a partner and director of Tilleke & Gibbins’ corporate and commercial group based in Bangkok, regulation and innovation are not in competition with each other. “When it comes to new and complex products such as those being developed in the fintech sector, a clear and comprehensive regulatory framework can give businesses the confidence to make investments,” Athistha tells ALB. In terms of consumer protection, while fintech has been instrumental in expanding banking and financial services to people who have traditionally been unbanked, lower levels of digital and financial literacy within the population pose a challenge for regulators, according to Athistha. “Legislation that gives consumers information and control, such as data protection laws, and that protect consumers from malicious activities, such as cybercrime laws, are key tools for tackling such problems,” Athistha says. REGIONAL DIFFERENCES The regulatory frameworks for fintech can differ greatly among Southeast Asian countries, potentially affecting businesses operating in multiple markets in the region. A FINE BALANCE Southeast Asia’s fintech industry will have to maintain a delicate balance between promoting innovation and implementing strong regulatory frameworks. As this industry evolves, regulators across the region should work together to take proactive measures and collaborate to protect consumers and encourage fair and responsible financial practices. BY ASIAN LEGAL BUSINESS Image: Owlie Productions/ F INTECH