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What does a sandbox have to do with FinTech?

2016-11-11 10:08:29

Financial Technology or ‘FinTech’ has major potential to grow the Indonesian economy and financial sector.  Financial inclusion is also likely to significantly increase with more agile financial services. Currently, only one in three adults in Indonesia have an account with a formal financial institution.  To achieve change, it is important that Indonesia adopt a market friendly approach to financial technology regulation. 

AIPEG is supporting a research partnership between the Australian Centre for Financial Studies (ACFS) and the Financial Services Authority (OJK).  During October, OJK officials are visiting Australia to study the Australian FinTech system, and to collaborate with the ACFS. Also assisting, are two former senior executives from Accenture and Hong Kong Bank with first-hand FinTech experience. OJK senior researcher, Hendrikus Passagi, one of the OJK team working with ACFS in Melbourne, recently stated “We plan to learn from FinTech incubators in other countries, such as Australia, to help build a strong development and support platform.”

Australia is considered an appropriate partner in this work given Australia’s sandbox regulatory approach. A ‘sandbox’ is a safe and conducive space to experiment with FinTech solutions. Within a well-defined space and duration, some legal and regulatory requirements may be relaxed.  But, safeguards are also in place to contain the consequences of failure and maintain stability of the financial system.  This is considered a model which regulators in emerging markets like Indonesia could take forward. 

An issue the joint research team has been grappling with, is whether Indonesia should issue rule-based, or principle-based regulation. Rule-based regulation, for example, favours extensive technical rules for consumer financial products, whereas a more principles-based approach emphasises broad standards for treating customers fairly. The second approach is more suited to a fast moving, dynamic environment.

The researchers have benefited from discussions with Australian regulators, including the Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC).  They have interacted with FinTech hub managers and companies, and senior academics advising regulators, including Professor Ken Davis, member of Australia’s recent Financial System Inquiry.