Different regions’ diverging approach to data protection and sharing is creating a disparate global fintech landscape. This lack of cohesion could lead to a host of risks for the financial sector, writes Danielle Myles.

Ever since governments started drawing up their post-crisis rulebooks, the industry has griped about being at a competitive disadvantage to their foreign peers.

US banks complained about their proprietary trading ban and accelerated timetable for implementing Basel III. Across the Atlantic, brokers are now bemoaning the EU’s tough new trading regime, which makes its markets the world’s most transparent, and banks grumble about having to fully capitalise a US intermediate holding company. Meanwhile, many Asian firms are stumped as to why they must fulfil expensive, globally agreed reforms when they pose minimal systemic risk.

These are all valid points, and they have regularly made headlines over the past seven years, but they are not having a measurable impact on countries’ global competitiveness. The fact is cross-border coordination and dialogue on prudential regulation have never been better – the recent EU-US equivalence deal is a good example.

Where an uneven regulatory playing field is emerging, however, is in fintech. Big discrepancies in data protection and the requirement that banks open their application programming interfaces (better known as APIs) is creating region-specific financial operating models. China’s permissive approach to data sharing has allowed two non-banks – Ant Financial and Tencent – to become the country’s dominant players in retail finance. This could never happen in Europe, where data privacy legislation is so tight that banks may lose the ability to monitor e-mails to ensure the firm is not engaging in prohibited activities.

The EU’s second Payment Services Directive means Europe could get a new financial operating model of its own. Fintechs could become a type of financial Amazon, collecting customer data via open APIs and creating a dashboard of customers’ savings accounts, stocks and fund holdings.

US authorities, on the other hand, have taken a back seat to financial innovation. While the American spirit of ingenuity has created one of the world’s biggest fintech industries, without a regulatory impetus they cannot disrupt the banking status quo.

These cracks in the fintech framework will put some regions on a faster path to financial inclusion, make compliance harder in others, and could even jeopardise a coordinated response to the next financial crisis. Forget capital and derivatives, the uneven playing field is in fintech, and the effects could be profound.

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