regulating fintechs Equal Rules for All

German regulators are reacting to the fintech boom. Katharina Schneider argues for new rules that neither protect traditional banks nor treat the startups with kid gloves.
Fintechs: More than a passing fad.

Financial market regulators are waking up to the flurry of young financial technology firms. And now the German Financial Regulatory Council (FSB), under Chairman Mark Carney, wants to kick off investigations into whether the booming fintech sector poses any risks to the financial system.

This is irrespective of whether these young guns of the financial industry are ultimately seen as a risk or an opportunity. The fact that the FSB is taking them seriously in the first place is already the right way to go.

It long seemed as if these startups, which are in the process of turning the banking world upside down, were merely a fad. When asked about fintechs, the established financial institutions downplayed the threat, viewing them as tiny and not a risk.

But that attitude has vanished. Banks are now creating their own startup incubators, buying fintechs or entering into joint ventures with them. This new openness on the part of lenders is an important step. It shows that they are not stoically clinging to their old system, but instead are opening up to innovation.

But it is precisely these cooperative arrangements between banks and financial startups that worries the German Federal Financial Supervisory Authority (BaFin).

It also fears that this development could pose reputational and liability risks to banks. On the other hand, BaFin notes that we must pay careful attention to whether fintechs are playing fast and loose with data or are running into problems with financing.

After all, every company – both newcomers and established firms, regardless of the industry – is required to comply with data privacy laws and obtain financing through legal means.

In the discussion over how fintechs should be regulated, many point out that special rules need to be created for the industry. But that is the wrong approach. The rules for startups cannot be stricter than for established financial institutions, nor can they be especially lax. All financial companies must protect their customers' deposits and data to the same degree.

Banks should not be given special treatment for being long-time members of the banking association, nor should young companies be treated with kid gloves.

The Fintech Sector in Germany-01