15 ASIAN LEGAL BUSINESS – AUGUST 2023 WWW.LEGALBUSINESSONLINE.COM F INTECH (SEC), which share oversight of fintech activities, have used a combination of new legislation and guidance to ensure that the regulatory system is adapting to new technologies and product offerings. For example, the Payment Services Act and the recently enacted Personal Data Protection Act have established general rules for fintech activities. Meanwhile, the Emergency Decree on Digital Asset Businesses and the BOT Notification on Peer-to-Peer Lending Businesses and Platforms establish more specific rules for fintech products seeing increased adoption by consumers. “The SEC has made extensive use of public consultations, including consultations on initial coin offering (ICO) portals, utility tokens, and digital asset advertising rules, to ensure that its regulatory approach aligns with both business practices and consumer needs,” says Athistha. “Thailand, which is home to some of Southeast Asia’s largest fintech companies, has shown that regulation, including consumer protective regulation, benefits rather than hinders innovation.” Torres also believes a regulatory sandbox could be a “game changer”. Ensuring that fintechs with novel and innovative business models have sufficient space to innovate and experiment under a regulatory sandbox model that adopts a risk-based approach is a good way to strike a balance between supporting innovation and regulation. “Regulatory sandboxes, coupled with proactive collaboration and engagement by regulators with the industry players to better understand these technological advances could also empower the fintech ecosystem as it not only serves to support innovation but through active collaboration, regulators would have direct information that would minimise the information asymmetry,” Torres adds. Torres also emphasises that it is crucial to have a more proactive approach in issuing regulatory clarity rather than a reactive or passive one, in order to create a more balanced regulatory environment for fintechs. Singapore also implemented regulatory sandboxes that allow fintech companies to test their innovations in a controlled environment with relaxed regulatory requirements. Haque believes that this approach promotes innovation while providing regulators with insights into emerging risks and consumer protection concerns. In addition, Singapore is careful to craft regulations to provide clarity on the treatment of cryptocurrencies and promote blockchain development. Such regulatory clarity helps attract blockchain-based fintech companies and projects to Singapore. “These best practices from Singapore demonstrate the importance of regulatory innovation, collaboration, and flexibility in fostering a thriving fintech ecosystem while ensuring consumer protection and financial stability,” says Haque. To stay ahead of the curve and to support the growth of fintech in the region, Athistha suggests that it is important for regulators to maintain open two-way channels of communication with stakeholders, including financial institutions, fintech companies, and law firms. “Ultimately, businesses need a clear and stable regulatory environment to invest in innovation. Businesses see a benefit to working with regulators to help ensure that rules are effective and aligned with commercial and consumer practices,” says Athistha. In addition, regulators should also ensure they are “nimble and responsive” in issuing new rules. While large framework legislations, such as data protection legislation, are important for establishing a firm regulatory foundation, it is equally important that regulators can quickly and easily issue subordinate legislation and guidance to respond to everchanging technologies and products. Regulating businesses has become increasingly challenging for regulators due to the constant and rapid evolution of innovative business models. It is a delicate balancing act. “In order to stay ahead and keep up with the emerging technologies, there should be stronger and more open collaborations between the government, fintech, start-ups, as well as incubators and innovators in order to bridge the information gap brought about by the complexities of these novel business models,” says Torres. By sharing information with other jurisdictions to adopt international best practices, policies can be streamlined and a more dynamic fintech ecosystem can be developed. This ecosystem would allow for innovation while maintaining risk management mechanisms. “Regulators should actively monitor the fintech landscape and conduct ongoing research to understand emerging technologies, business models, and market trends. This will enable them to anticipate potential risks and challenges associated with innovations,” says Haque. Haque believes that responsible growth in the fintech industry can be fostered through collaboration with industry stakeholders and interagency collaboration. “Establishing a collaborative relationship with fintech companies, industry associations, and technology experts is essential. Engaging in regular dialogues and consultations with stakeholders helps regulators gain insights into industry developments and potential risks,” says Haque. “Collaboration among different regulatory bodies is essential, as fintech often operates at the intersection of various sectors, such as finance, technology, and data protection. Interagency coordination helps create comprehensive and consistent regulations.” In addition, regulators should consider a flexible and adaptable approach to regulations. Rules that are too strict might hinder innovation, while regulations that are too lenient could pose unnecessary risks. It is crucial to have the capability to promptly update regulations as new challenges emerge. “In my view, regulators can foster an environment that encourages responsible fintech growth while effectively managing potential risks. Striking the right balance between innovation and regulation is crucial for ensuring a thriving and sustainable fintech ecosystem that benefits consumers and the broader economy,” says Haque.