Indonesian president Joko Widodo endorses a light touch for fintechs but IMF managing director Christine Lagarde prefers a 'proportionate' approach. Brian Caplen assesses which is the best way forward.

All countries are facing the challenge of how best to regulate fintechs. For emerging markets the stakes are especially high. The sector offers huge potential to increase growth and promote financial inclusion but there are also risks to financial stability.

Most importantly, emerging markets these days realise – as Indonesia’s president, Joko Widodo, noted at the IMF/World Bank annual meetings in Bali — that retreating behind protected national borders would fail as a policy anyway. This would, said the president, only push consumers offshore and drive economic activity into cyberspace where the authorities would have no idea what was happening.

Comparing the current disruption in payments with the first internet revolution 25 years ago in the US, Mr Widodo said a “light-touch safe harbour” approach had worked then and was appropriate now. It was important not to overly restrict entrepreneurs, he said.

He was speaking at the launch of the Bali Fintech Agenda, a set of 12 policy elements put forward by the IMF/World Bank to guide governments in gaining the benefits of fintech while managing the risks.

But not everyone is sold on the idea of applying light touch regulation to fintechs. Both Bank of England governor Mark Carney and IMF managing director Christine Lagarde used the description “proportionate” in a panel discussion on the Bali Fintech Agenda.

“I am a little bit concerned when I hear talk about light touch because it reminds me of the soft-touch regulation we had just before the crisis in 2008,” said Ms Lagarde.

The important thing about the Bali Fintech Agenda is that the discussion about regulation, financial inclusion and fair competition (with existing banks, for example) is happening as the sector develops rather than waiting until it is too big to restrain.

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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