Fintech firms, once seen as the “disruptors”, threatening to displace the traditional banking world, are now increasingly seen as attractive partners for established financial institutions. Such partnership agreements come in different forms and contexts, mostly with the goal of outsourcing key banking functions and of facilitating market entry for new market players while overcoming relatively tough regulatory hurdles.
Yet such arrangements, while generally to be welcomed, pose a number of regulatory problems, in particular concerning the effective supervision of fintechs that operate outside of the direct limelight of regulatory authorities. Questions of enforcement and effective supervision emerge, which may ultimately result in problems for market stability and systemic risk. Regulatory sandboxes are one attempt to address these problems but may fail to do so and are not always available.
Against this backdrop, Luca Enriques (University of Oxford); Georg Ringe (University of Hamburg) make the case for a “mentorship regime”, which provides for a reliable regulatory framework for partnership agreements between fintech firms and established banks. This would allow for a de facto “private sandbox”, where experienced firms could mentor new startups and relieve them of a convoluted regulatory process. At the same time, a state-backed mentorship plan would clear up responsibilities, supervision competences, and liability questions and thus overcome problems of arbitrage and abuse. Ultimately, a mentorship regime may show the way to a new and more reliable future system of banking that puts the well-established contractual practice of outsourcing banking services on a more reliable basis.
The presentation will be followed by a commentary by Anna Maria Nowak (European University Institute).
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