What SA Fintech startups should know about dealing with regulationsMay 21, 2019 Blog FinTech , Regulations
Ventureburn recently published a very insightful article on how to navigate the muddy waters of South African Fintech regulation. It says that Fintech startups should do the following:
Existing regulation can provide a guide
If your product or service is similar to other offerings in the market, make sure to apply the existing regulations. This is important for both your customers and investors. Marius Reitz, SA cryptocurrency firm Luno’s general manager for Africa states that “these companies have regulatory certainty from the start and this helps build trust for businesses and consumers because they know the product or service is being held to a defined regulatory standard”.
Square peg in a round hole
If your Fintech doesn’t have an obvious fit, it can make things difficult. Nerushka Bowan, an emerging law specialist and legal tech innovator says the following: “When you create a new way of doing something that does not fit the existing mould, especially in a highly regulated area like financial services, it can be a daunting task to determine where your regulatory requirements lie”. He believes that the absence of comprehensive regulatory guidance on the use of cryptocurrency, for example, is a disadvantage to both service providers and customers and it provides an excuse for conservative merchants and financial services firms to shy away from bitcoin. He says “they conflate ‘not regulated’ with ‘illegal’ and may miss the opportunity to provide valuable services to customers”.
Thomas Reisenberger, the compliance legal adviser at Legalese, a creative legal agency for startups says: “the biggest hurdle I am experiencing on behalf of my clients is their inability, as grass-roots developers and entrepreneurs in the Fintech sector with no legal training or network connections, to obtain authoritative, reliable and consistent legal advice from the respective authorities”. He says that mostly these entrepreneurs need to move quickly and with certainty to get to the market first and not being able to get fast and correct legal guidance from the authorities can be disastrous and detrimental to a Fintech’s ambitions.
SA on the right track
South Africa does seem to be moving in the right direction. The Intergovernmental Fintech Working Group (IFWG), consisting of members of the National Treasury, the SA Reserve Bank, the Financial Sector Conduct Authority and the Financial Intelligence Centre, was set up at the end of 2016 to develop a co-ordinated approach to Fintech regulation that would encourage innovation and, at the same time, ensure continued financial stability and protection of customers and investors. The group is expected to publish an updated regulatory framework for the Fintech industry in the coming months.
Part of the IFWG’s responsibilities is to gauge the need for regulatory sandboxes. According to Reitz, a regulatory sandbox is “a framework set up by a regulator that allows Fintech startups and innovators to conduct live experiments in a controlled environment under a regulator’s supervision”. This will be beneficial to both Fintechts to experiment with innovation, and to regulators to test the waters with greater visibility as to the most appropriate regulations to implement.
What does the future look like?
According to Brown, the regulatory environment will become less constrained by geographical limits and they are already coordinating amongst each other across national borders. She says: “Global think-tanks such as the Bank of International Settlements and the Financial Action Task Force will play a bigger role in drawing up global policy and guidelines. These recommendations will guide independent national regulators to harmonise local regulations.” A more collaborative approach between global authorities will help speed up the implementation of necessary regulation in South Africa.
Reitz believes that our regulators are ahead of the curve. He says: “Broadly speaking, South African regulators tend to move faster than some of their international counterparts, using existing legislation to cover new regulation which tends to be slow and expensive. Early-stage businesses and new entrants should therefore not be put off by the lack of explicit and clear-cut regulations, but rather that heart from how forward-thinking and proactive our regulators are.
To read the full article on Ventureburn, click here.