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Banking Regulation In A Digital World


Regulators looking for ways to balance client protection, financial institution risk, and other policy goals in digital banking might benefit from early regulatory experiences.

When it comes to balancing the benefits and risks of digital banking, the challenge for regulators is to strike the appropriate balance between encouraging innovation and safeguarding customers. Digital start-ups and fintech are currently subject to existing banking laws and regulations in the majority of countries.

Digital banking and regulation today

Digital banking is available practically everywhere in the world, with incumbents, fintech, and new digital banks all providing easy-to-use banking services.

Regulators across the globe have adopted and accepted various technological innovations, allowing existing banks to modernize while paving the way for digital banks and entirely digital businesses to emerge. Traditional players and digital banks alike can benefit from the following advancements and laws, which enable or enhance their digital offerings:

  • Electronic know your customer– allows for fully digital onboarding, with stand-alone analytics verifying customers’ identities and doing anti-money laundering checks. Regulators might customize identifying systems to suit their needs.
  • E-Signatures- Customers can use e-signature to validate most types of transactions from afar.
  • Open banking– promotes data exchange and network effects for better client assessment and remote or automatic third-party transactions.
  • Ecosystem opportunities- Nonbanks can compete by making use of ecosystem opportunities, which give customers access to a wider range of services.

Where traditional banking licenses are limited, dedicated digital licenses can open up markets to new participants. In countries where traditional licenses are prevalent, technology companies are more likely to purchase small traditional banks and convert them to digital banks, or simply add lending and payment products to their ecosystems.

Where a digital banking or normal banking license was not available, some fintech and big technologies grew organically, adding financial products like lending or payments but not collecting deposits or offering a full banking solution.

Around 15 typical criteria are used by regulators. Applicants must meet these established standards, but they will have some freedom in how they do it. The framework establishes the types of products that can be offered by digital banks. The Abu Dhabi Global Market regulator in the United Arab Emirates has given licenses for the corporate divisions.

To Conclude

While many people’s daily lives have been transformed by digital banking, this business model is still relatively new. While both digital and traditional banks are governed by the same rules globally, certain jurisdictions have built regulatory frameworks expressly for digital banks.

For nations adopting this path, we believe it is worthwhile to look at how other markets have dealt with the combined problems of ensuring the financial system’s stability and protecting customers’ interests while also using digital banking regulation to achieve larger policy goals.


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