A roundup of where global regulation is responding to the march of fintech.

According to data services group GlobalData, fintech has unleashed “a golden age of innovation” for financial services, with entrants going after every piece of the banking value chain. In "eat lunch or be lunch" terms it is hard to keep up with how far and fast the sector is developing. But in its latest report Fintech: Thematic Research, the global data specialist rattles through a host of areas where regulators are opening up new markets for challenger businesses and hybrids in this messy but exciting space.

Open banking
It sees the most disruption and fastest pace of change coming from open banking, typically by companies developing new infrastructure using application programming interfaces, known as APIs, which are making “direct-to-consumer fintech business models more viable.”

Risk-based regulation
The report suggests that fintech firms have lobbied regulators effectively not to be held back. In the US, for example, the Office of the Comptroller of the Currency (OCC), an independent agency that sits inside the US Treasury, has proposed a special-purpose national bank charter that would allow fintechs to operate nationally without having to the meet stricter rules and capital requirements of a full charter.

Hong Kong has introduced a series of new virtual banking licences, with Singapore and Taiwan expected to follow suit, the report said. Similar efforts are underway in Australia, where three neobanks -- 86 400, named for the number of seconds in a day, Volt and Judo -- have been given full licences, and a restricted licence issued to a fourth digital newcomer in Xinja. Outside the big four of ANZ, NAB, Westpac and the Commonwealth Bank, challenger banks are being welcomed as Australia's incumbents labour under fresh anti-money laundering controversy. This newswire reported on Westpac's troubles this week.

Fee transparency and limits on commission
GlobalData’s research also suggests that regulators have been more effective in clamping down on errant overdraft charges, interchange fees, payment protection mis-selling and hidden fees in commissions. “In exposing the true cost of financial services, regulators are making the cost differential between incumbent services and fintechs more apparent,” the report said.

Regulatory arbitrage
The Basel III framework, introduced earlier this year requiring that banks maintain tier 1 and tier 2 capital of at least 8 per cent of their risk-weighted assets, and upto 10.5 per cent with a capital buffer, is putting more oversight burdens on incumbents. The report argues that such protections are less onerous for challengers. “Firms such as Prosper and LendingClub are funding in a way that requires less capital to be held on their own balance sheets," and non-bank fintechs earn more from interchange fees than incumbent banks, it said.

Regtech
It views banking regulation as a “massive commercial opportunity” for fintechs as global banks try to get a grip on AML and other compliance issues. Danske Bank, for example, has set aside around $1.5 billion to cover fines from the Danish bank's widely reported money laundering scandal. It is not alone, with a number of big European banks facing their own probes and fines. It highlights Money Catcha and RegTek Solutions as two businesses using machine learning, artificial intelligence, and APIs to help incumbent banks limit potential reputational and financial damage from anti-money laundering and other know-your-vendor violations.

GDPR and related fines
The report winds up on Europe's General Data Protection Regulation (GDPR) being more widely adopted as part of any bank's preparation for the growing influence of data-driven business models. Fines of up to 4 per cent of global turnover can be levied on organisations that fail to obtain permission to process data. Since GDPR was passed, other countries such as Argentina, Australia, and Brazil have begun implementing similar rules to protect consumers.

Being watched most avidly perhaps is what is happening in the US following California’s decision to introduce The Consumer Privacy Act, which comes into force in January 2020. Watchers believe that the US federally is likely to adopt similar stronger consumer protection laws, give or take what next year's presidential elections bring. California has been at the vanguard of tightening data protection rules at the state level as data breaches and unsavory collection practices at tech goliaths like Google and Facebook have escalated concern.