Cross-border cooperation in financial regulation: crossing the Fintech bridge

Cross-border cooperation in financial regulation: crossing the Fintech bridge Key points This article examines the implications of the rise of Fintech for achieving effective cooperation in the area of financial regulation. While the disruptive and transformative impacts of Fintech pose significant challenges for domestic regulators, Fintech also presents opportunities to enhance cross-border regulatory cooperation, which is particularly important in an increasingly complex globalized financial economy. To provide insights into the way in which regulatory cooperation in relation to Fintech can evolve, we examine the role played by domestic regulators and the International Organization of Securities Commissions in establishing a cross-border securities enforcement framework. We show how the initial steps by financial regulators to enter into bilateral Fintech agreements have the potential to translate into more substantial and wide-reaching cooperative arrangements. 1. Introduction Fintech, which refers to the use of technology in providing financial services, is an increasingly important phenomenon in the financial services sector.1 Fintech provides both economic benefits (via increased competition, efficiency and innovation) and opportunities for increasing levels of financial inclusion. However, it also comes with risks. These risks can affect individual users of new Fintech offerings or schemes that are fraudulent or susceptible to cyber-attacks. Importantly, the rapid rise of Fintech may also affect broader financial and economic systems.2 The balancing act involved for governments and regulators in developing appropriate regulatory responses to Fintech innovation requires the weighing-up of the potential benefits of innovation with the risks to consumers, investors and the broader financial systems. It also involves a reconsideration of financial regulatory regimes that have traditionally been focused on financial institutions such as banks.3 Fintech requires cross-border regulatory cooperation because of the globalization of markets and the disruptive nature of Fintech businesses. Following the Global Financial Crisis (GFC), financial regulators have been required to address a broader set of regulatory objectives and policy priorities, within an expanded regulatory perimeter and an increasingly complex technological landscape.4 Other legal and regulatory issues include privacy, data protection, cyber security, digital disclosure, money laundering and financial crime. Addressing these issues is particularly important in the developing world, including in Asia, where Fintech growth has recently been most rapid5 and where the Fintech industry is becoming a central feature of financial market development.6 In an environment of rapidly evolving, technologically complex and disintermediated financial services markets, financial regulators face significant challenges in designing appropriate regulatory regimes governing Fintech and achieving cross-border regulatory coordination.7 In this article we examine the recent rise of bilateral regulatory Memoranda of Understanding in the area of Fintech, which represent the first steps taken by regulators to establish formal agreements aimed at facilitating cooperation relating to Fintech and supporting innovation. The establishment of these Memoranda of Understanding (Fintech MoUs) follows calls by regulatory networks such as the International Organization of Securities Commissions (IOSCO) to move towards closer regulatory cooperation, as reflected in the recent IOSCO report on Fintech;8 however, Fintech MoUs are quite distinctive (and untested) at this stage of their development. In order to understand the purpose and role of Fintech MoUs—and their potential to result in more developed forms of regulatory cooperation—this article locates Fintech MoUs within the panoply of different forms of regulatory cooperation and considers the extent to which they can draw on, and inform the development and extension of, those established forms of regulatory cooperation. We outline some of the key forms of regulatory cooperation and their benefits and limitations in Section 2 of the article. We focus in particular on bilateral regulatory cooperation agreements (Memorandums of Understanding or MoUs), including those that have been entered into under the auspices of IOSCO, an organization that represents securities regulators. We illustrate how these MoUs eventually evolved into a broader cross-border securities enforcement framework: the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU). Section 3 examines the experience to date of Fintech MoUs and their potential to draw on, and inform the development and extension of, the forms of regulatory cooperation discussed in Section 2. Section 4 concludes. 2. Enhancing regulatory cooperation between securities regulators: from bilateral agreements to multilateral arrangements Because Fintech is a recent phenomenon, cross-border regulatory cooperation in this area is in its very early stages and is largely untested. This part of the article provides a general overview of the key forms of cross-border regulatory cooperation in the area of securities supervision and enforcement in order to establish the context for an examination of Fintech MoUs and their potential development in Section 3. The proliferation of bilateral MoUs Cooperation in the area of securities regulation is important because it assists regulators address territorial concerns that arise in an increasingly complex globalized market, but one that is primarily regulated by domestic agencies. These agencies have oversight over only a small part (the domestic part) of large businesses and inter-related global markets.9 In the area of securities regulation there are multiple sets of sometimes contradictory national securities laws that apply to transnational securities transactions.10 Hypothetically, such broad concerns could be dealt with by the establishment of a treaty or by having harmonized securities laws. However, treaties are ‘expensive, difficult to conclude, negotiated by diplomats, must be ratified, and bind states against one another’.11 Harmonizing all states’ relevant laws in a broad and complex field such as securities may also be implausible, due to the difficulties in obtaining consensus on the substance of these laws. These difficulties have meant that in the area of financial regulation, regulators have formed a number of informal international regulatory bodies or networks.12 These informal networks of national regulators—referred to as transnational regulatory networks (or transgovernmental regulatory networks) (TRNs)—have captured the attention of scholars and practitioners.13 The agreements produced by regulators and TRNs have been characterized as a form of ‘soft international law’—as compared to hard law agreements, such as bilateral or multilateral treaties. Soft law is not codified in treaties or incorporated into domestic legislation. A key role of TRNs such as IOSCO is to promote harmonization and facilitate regulatory cooperation. IOSCO is responsible for developing, implementing and promoting adherence to internationally recognized standards for securities regulation.14 While there are potential challenges faced by TRNs in facilitating convergence or harmonization of laws and standards, there has been significant cooperation in relation to enforcement and investigations relating to securities. This is an area where cooperation between regulators has played an important role in assisting regulators execute their domestic mandates by effectively extending their reach beyond the regulators’ national boundaries.15 Much of this cooperation has occurred under the auspices of IOSCO. IOSCO, the international body that represents the world’s securities regulators, is one of the oldest and most established TRNs. IOSCO, which was established in 1983, has over 200 members from over 115 jurisdictions.16 Its membership regulates more than 95 per cent of the world’s securities markets.17 The first examples of formalized cross-border cooperation in relation to enforcement were bilateral MoUs.18 They gained greater prominence in the 1990s, largely under the aegis of IOSCO, which encouraged members to provide reciprocal assistance19 and enter bilateral agreements.20 IOSCO published general principles for the drafting of MoUs containing certain basic standards of cooperation, which eventually led to hundreds of bilateral and regional MoUs being concluded between IOSCO members.21 Many of these MoUs supplement the IOSCO MMoU (which is discussed below) to provide an agreement more tailored to the regulators’ specific legal requirements and the powers available domestically to the regulators. The US Securities and Exchange Commission (SEC), which was the key actor involved in the establishment of IOSCO,22 has been active in entering MoUs (including the earliest MoUs, which related to enforcement), since the 1980s.23 The SEC lists five categories of cooperative arrangements with foreign regulators on its website, which are (1) Enforcement Cooperation (25 MoUs); (2) Supervisory Cooperation (48 MoUs); (3) Technical assistance (9 MoUs), (4) Terms of Reference for Bilateral Dialogues (6 sets of terms of reference), and (5) Mutual Recognition (only one arrangement, with Australia).24 The SEC’s Office of International Affairs (OIA) receives and sends out hundreds of requests for assistance annually, primarily via its MoUs with other financial regulators.25 Cadmus examines the MoUs signed by the SEC and suggests that MoUs ‘hold the promise of successfully promoting cooperation’, and that they ‘embody the flexible and timely approach desirable in securities regulation’.26 It is suggested that the MoUs enhance the level of information-sharing with other regulators by providing an information-exchange framework, which is critical in addressing the difficulties involved in discovering and investigating transnational transgressions.27 MoUs, including those that relate to enforcement, are commonly signed between other financial regulators, including in the Asian region, which points to regulators’ belief in their usefulness and effectiveness in encouraging meaningful cooperation.28 For example, the Chinese securities regulator, the China Securities Regulatory Commission (CSRC), listed 51 agreements on its website as at the end of February 2012. The majority of these agreements relate to regulatory cooperation with other regulators.29 China’s securities regulator has even signed an agreement with Taiwan.30 India’s Securities and Exchange Board has also been active in signing MoUs. The Indian regulator, Securities and Exchange Board of India (SEBI), has currently signed 24 of these MoUs with other regulators.31 In Australia, ASIC has signed 98 bilateral agreements relating to various aspects of financial regulation.32 In New Zealand, the Financial Markets Authority lists 14 MoUs with securities regulators in other countries, as well as 25 MoUs in relation to the supervision of alternative investment fund managers with EU authorities. The authority also lists a number of MoUs with various other bodies based in New Zealand such as the Commerce Commission, Reserve Bank of New Zealand and the NZX Limited.33 It is generally considered that MoUs are effective tools in enhancing cooperation between regulators. Brummer observes that MoUs ‘enhance cooperation and promote information sharing, knowledge of other regulatory systems, and trust between regulators’.34 While MoUs are not legally enforceable, Brummer suggests that their ‘effectiveness relies on the premise that regulators presumably want to stay in good standing with their peers’, and that ‘reputation and the prospect of reciprocal noncompliance’ provide the primary form of incentivising cooperation.35 Thus, Brummer asserts that ‘regulators will comply with the terms of the agreement, as most (especially those of major markets) have a strong self-interest in promoting their own powers of cross-border enforcement’.36 Brummer observes that ‘[n]ot surprisingly, when receiving requests, regulators generally work hard to meet the expectations of counterparties under existing bilateral MOUs, and the agreements are frequently used as a basis for making requests and negotiating cross-border cooperation’.37 By comparison with efforts to achieve harmonized securities laws or standards, cooperation is more plausibly promoted by less formal arrangements, such as MoUs.38 Indeed, it has been suggested that even when regulators have entered into an MoU in part because it is not legally binding, the existence of an agreement can create a ‘surprisingly effective arrangement between diverse regulators’.39 Facilitating enforcement and investigations: IOSCO and the MMoU A key limitation of bilateral MoUs is that they do not constitute a broader framework in the area of financial regulation due to their limited reach.40 In order to extend this reach, IOSCO adopted the MMoU in 2002. The key events that triggered a new approach to cooperation were the terrorist attacks of 11 September 2001, and the concerns that financial markets had been used for terrorist financing.41 The MMoU was to a large extent modelled on the SEC’s enforcement MoUs, which had been in place since the 1980s.42 The MMoU, which IOSCO describes as the benchmark for international cooperation among securities regulators, was designed to facilitate the exchange of information among international securities regulators in the context of enforcement.43 IOSCO is not the only TRN looking to build on the reach of existing bilateral agreements by establishing multilateral agreements. For example, the Forum of European Securities Commissions (FESCO) established its own MMoU, the Multilateral Memorandum of Understanding on the Exchange of Information and Surveillance of Securities Activities in 1999 (the MMoU was recently updated in 2014).44 In 2007, the International Association of Insurance Supervisors (IAIS) established an MMoU, which is also aimed at providing a global framework for cooperation and information exchange.45 While IOSCO members are able to—and indeed are encouraged to—enter into bilateral arrangements, the IOSCO MMoU serves as a floor for minimum obligations of members.46 In providing a constructive framework for cooperation, the MMoU is likely to improve the effectiveness of global security market governance, providing global welfare gains.47 It has also been suggested that there are strong incentives for countries to sign the MMoU.48 There are at present 115 full signatories to the MMoU, and 14 more members have committed to seeking the legal authority necessary to enable them to become full signatories.49 Under the MMoU, securities regulators can provide information and assistance, including records, in relation to certain offences, to other signatories.50 IOSCO states that its top priority is ‘for its members to achieve the effective implementation of the IOSCO Principles and the MMoU, thereby facilitating cross-border cooperation, mitigating global systemic risk, protecting investors and ensuring fair and efficient securities markets’.51 It has been suggested that IOSCO has had ‘remarkable success’ in increasing securities enforcement cooperation among regulators—in part because ‘virtually all legal systems and cultures view fraud as reprehensible’.52 Enforcement cooperation is also an area in which only a minority of regulators of smaller markets, or possibly politically sensitive markets, face significant trade-offs.53 Verdier suggests that in the area of securities enforcement cooperation, once the mechanisms are established, ‘coordination is largely self-sustaining, which is why compliance with the IOSCO standards does not require dispute-resolution or enforcement mechanisms’.54 This certainly appears to be the case with the MMoU, which is increasingly being relied on by securities regulators—IOSCO reported that in 2015 there were 3,203 requests for information made under the MMoU, compared with only 56 in 2003.55 IOSCO is also looking to build on the success of past cooperative arrangements to ensure they continue to provide an effective framework for enforcement and investigation in a changing environment. To achieve this, IOSCO is now seeking to implement an enhanced standard for cross-border enforcement cooperation, the ‘Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and Exchange of Information’ (EMMoU). The EMMoU aims to build on the MMoU by providing regulators with additional enforcement powers that IOSCO considers are necessary due to the changes brought about by technology and market-based finance.56 IOSCO notes that while the MMoU will remain in effect for as long as any signatories continue to use it, IOSCO’s objective is for all MMoU signatories to eventually migrate to the EMMoU.57 From enforcement towards harmonization and enhanced supervision In this part of the article we have illustrated some of the ways in which regulators and regulatory networks have sought to facilitate cross-border cooperation via bilateral and multilateral agreements, including those relating to securities investigations and enforcement. The various forms of regulatory cooperation have played a role in promoting harmonization (through the publication of standards by TRNs such as IOSCO) and facilitating regulatory cooperation, particularly in the enforcement context. The IOSCO MMoU perhaps represents the apex of this trend and is already well-established and, indeed, recognized as a pre-requisite for certain purposes. For example, to become an active participant of the Asia Region Funds Passport initiative requires countries to be signatories to the MMoU.58 A number of members of IOSCO have also taken steps to restrict dealings with entities or individuals linked to jurisdictions that are not signatories to the MMoU.59 It has been suggested that soft law agreements (such as MoUs) can evolve into hard law (such as treaties) by moving norms into greater alignment.60 However, in practice, while agreements relating to enforcement have been effective in enhancing cooperation and facilitating mutual assistance between financial regulators, it has been suggested that they have generally had a more limited role in helping to shape the development of international rules or achieving substantially harmonized securities laws.61 In other words, while the MMoU and the existing MoUs have a useful role, these mechanisms have traditionally been used as an ex post tool aimed at facilitating regulatory cooperation relating to investigations and enforcement.62 These mechanisms may have had more limited success at achieving convergence (such as the harmonization of laws and standards).63 Austin suggests that IOSCO is able to achieve a degree of convergence in securities laws via the MMoU, or specifically via the relationship between the MMoU and IOSCO’s Objectives and Principles of Securities Regulation.64 These objectives and principles have been endorsed by both the G20 and the Financial Stability Board (FSB) as the relevant standards for securities regulation.65 They form the basis for the evaluation of the securities sector for the Financial Sector Assessment Programs (FSAPs) of the International Monetary Fund (IMF) and the World Bank. Before a country is able to participate in the MMoU, it is screened by IOSCO to ensure that it can comply with its provisions. This means that the country’s laws need to align with Principles 11–13 of the Objectives and Principles of Securities Regulation.66 For example, as observed by Austin, countries with secrecy laws that could prevent the collection or provision of information under the MMoU cannot become a signatory of the MMoU.67 Such a country could instead be listed under Appendix B to the MMoU, which would enable IOSCO to provide it with assistance to achieve the necessary legislative changes.68 The preceding example illustrates how the MMoU is used by IOSCO to drive incremental changes to domestic legislation and facilitate greater convergence with certain of IOSCO’s objectives and principles. Thus, Austin suggests that IOSCO members are more likely to accept increased convergence if there is an incentive in place, such as the ability to rely on the MMoU.69 It has also been observed that agreements between regulators have played a more limited role in enhancing cooperation outside of the enforcement context, for example by enhancing supervision to prevent misconduct from occurring in the first place (although proponents of these mechanisms may argue that this was never their objective). For example, it has been suggested that IOSCO has had only limited success in achieving enhanced supervision in relation to offshore financial centres.70 However, more recently IOSCO appears to have made progress in this area—Austin suggests that the MMoU had been used by IOSCO to help bring about changes in domestic laws in a number of countries, such as Switzerland, the Cayman Islands and the British Virgin Islands, all of which were previously known for their banking secrecy laws.71 A number of regulatory mechanisms aimed at facilitating cooperation in a supervisory context are outlined in IOSCO’s Final Report titled Principles Regarding Cross-Border Supervisory Cooperation.72 The IOSCO principles distinguish between ‘supervisory cooperation’ and ‘enforcement cooperation’, emphasizing the importance of ‘supervisory cooperation independent of an enforcement context’.73 The report sets out a number of ways in which supervisory cooperation can be achieved. For example, cooperation may be facilitated by ad hoc discussions or technical assistance provided by regulators. The idea of supervisory colleges has also drawn increasing interest from financial regulators. There is also scope for smaller networks of regulators, such as IOSCO’s various committees, to enhance cooperation. While an examination of these mechanisms is beyond the scope of this article, these mechanisms—if implemented effectively—may also play an important part in enhancing cooperation between regulators in this area. However, as observed by Dao, Godwin and Ramsay, the potential of all these mechanisms relies on the ability and willingness of regulators to use them proactively.74 Indeed, this limitation may reflect a broader difficulty of achieving effective cooperation by TRNs relating to those issues where national or regulatory preferences conflict,75 and also as a result of restrictions in domestic law such as confidentiality and information-sharing. 3. The emergence of Fintech and challenges to enhancing regulatory cooperation In this part of the article we examine the first steps taken by regulators to enhance cooperation in relation to Fintech through Fintech MoUs outline the parallels between the Fintech MoUs and the forms of regulatory cooperation discussed in Section 2, explore some of the key benefits of enhanced cooperation between regulators in this area, and briefly identify some possible future developments aimed at achieving effective cooperation in the area of Fintech regulation. Fintech MoUs While the Fintech sector has attracted significant investment76 and widespread attention of industry, governments,77 regulators and the media only in recent years, the term ‘Fintech’ can be traced back to the early 1990s.78 The provision of financial services via the use of technology can be traced much further back.79 The rise in Fintech has accelerated rapidly since the GFC.80 At a domestic level, several regulators have recently implemented a number of important initiatives aimed at supporting Fintech businesses. Two of the key initiatives are regulatory sandboxes and regulatory innovation hubs. Regulatory sandboxes involve the grant of licensing exemptions and conditional relief from regulatory requirements to allow Fintech businesses to test their concepts in a controlled environment established by the regulator in consultation with the business. Staff at innovation hubs have the role of providing direct support for, and engaging with, Fintech businesses, particularly in relation to navigating the regulatory requirements.81 Generally, to obtain support through the innovation hub the business needs to satisfy several eligibility criteria.82 By engaging constructively with the Fintech industry through their innovation hubs and sandboxes, regulators are able to be more adaptive, and avoid regulatory inertia by learning about emerging financial technologies and adapting their future regulatory processes. This in turn can help ensure that lawmaking and regulatory design is more proactive, dynamic and responsive.83 In an environment of rapid expansion in Fintech it is also important for financial regulators to effectively coordinate with their peers in other countries. A basic reason for this is that in an era of globalized markets and increased connectivity via the internet, many innovative start-ups will seek to operate in more than one country—or even globally. As noted by ASIC Chairman Greg Medcraft, ‘… because the internet knows no borders, cooperation between jurisdictions is critical to our markets and economies reaping the benefits and opportunities both Fintech and Regtech offer’.84 While regulators’ innovation hubs are aimed at assisting businesses to navigate their respective national regulatory systems, complexity may increase significantly for start-ups seeking to operate in multiple jurisdictions. These start-ups must navigate multiple sets of financial regulation, which increases the level of regulatory uncertainty and time-to-market.85 By scaling up and expanding internationally, Fintech start-ups can potentially become more sustainable challengers to incumbent players in traditional markets. This is an area where regulators can also play a key role, by connecting start-ups with other international regulators, easing the burden on these businesses. A number of regulators have taken the first steps to enhance regulatory cooperation relating to Fintech. In most cases, this has involved the signing of MoUs, with other countries’ financial regulators that have their own innovation functions. Fintech MoUs are a very recent phenomenon—the first one was signed by ASIC and the FCA in March 2016.86 A number of Fintech MoUs have since been signed by regulators including the FCA, ASIC, the Monetary Authority of Singapore (MAS), the Hong Kong Monetary Authority (HKMA), the Hong Kong Securities and Futures Commission (SFC), and the Ontario Securities Commission (OSC).87 MAS has also recently signed a number of agreements relating to Fintech.88 Both ASIC and the FCA and have undertaken formal exchanges of letters with the Financial Services Agency of the Government of Japan that set out arrangements that are broadly consistent with the other cooperation agreements.89 The primary purpose of Fintech MoUs is to provide a framework for cooperation and referrals between the ‘innovation functions’ (ie innovation hubs) of each authority.90 Broadly, the agreements establish a referral mechanism that enables the authorities to refer ‘innovator businesses’ between their respective innovation functions, and set out how the authorities plan to share and use information on innovation in their respective markets.91 For example, to seek an international referral from ASIC, a business is required to submit an ‘international referral request’ form to ASIC’s innovation hub, providing information about the business, information about the innovation and business model, and explaining how the innovation meets the eligibility criteria for referral.92 The agreements also set out some of the ways in which regulators will provide support to businesses referred to them under the agreements. Support provided includes the provision of a dedicated team and/or a dedicated contact for each business, as well as assistance for businesses in understanding the regulatory framework and how it applies to them.93 Assistance is provided prior to the business submitting an authorization, during the authorization process, and after the business is authorized.94 Under some agreements regulators agree to share information—including on emerging market trends and regulatory issues arising from the growth in innovation—in order to promote innovation in financial services in their respective markets.95 For example, such agreements have been signed by ASIC with Kenya’s Capital Markets Authority and with the Indonesian financial regulator, Otoritas Jasa Keuangan (OJK) and by the FCA with the Republic of Korea’s financial services regulator and with the People’s Bank of China (PBOC). Typically, Fintech MoUs contain the following content: Definitions: The relevant terms, such as the ‘criteria for support’, ‘innovator business’, ‘referring authority’ (the authority that is referring an innovator business under the MoU) and ‘receiving authority’ (the authority that is receiving an innovator business referral or information under the MoU) are defined. Introduction: The provisions in this section outline the mutual desire of the authorities to promote innovation and introduce the authorities’ respective innovator functions or hubs. The provisions also outline the support that the respective innovation hubs/functions offer to innovator businesses (if applicable). Purpose: This provision outlines the purpose of the MoU, which is to provide a referral mechanism that governs cooperation and referrals between each authority’s innovation hub/function. Principles: The purpose of this section is to note that the authorities intend to provide the fullest possible mutual assistance to one another under the MoU while being subject to domestic laws and regulations in each jurisdiction. The provision clarifies that the MoU is a ‘statement of intent’ and does not create any enforceable rights, and is not legally binding. Scope of Cooperation: This section outlines the scope of cooperation. The current MoUs typically include an outline of the referral mechanism (if one exists), and provisions outlining the sharing of information. Confidentiality and Permissible Uses: These are confidentiality provisions surrounding the use of the information provided under the MoU. Term: This section sets out that the MoU takes effect from the date of the execution and will continue to have effect until terminated by either of the parties (which are required to provide at least 30 days’ written notice to terminate the agreement). Amendment: This section notes that the MoU may be amended if both authorities agree in writing. There has been a high degree of standardization in the agreements entered into so far, although there are some variations in drafting. We examined some of the first agreements implemented to identify the more significant differences, which are summarized below. The ASIC–OSC and ASIC–MAS agreements have a requirement that the criteria for support for businesses wishing to operate in the authority’s jurisdiction should include that the businesses: offer innovative financial products or services that benefit the consumer, investor and/or industry; and have conducted sufficient background research on the regulations that might apply to them. The FCA–ASIC agreement does not include such a requirement. However, the innovation functions of both ASIC and the FCA have such requirements in their respective eligibility criteria which means that this omission from the MoU is likely to be largely immaterial.96 An additional requirement in the ASIC–OSC agreement (which is not present in ASIC’s other agreements) is that the criteria for support should include that the business is a start-up or an authorized financial services provider in its first year of operation since obtaining its authorization. The FCA–ASIC agreement does not provide any such specific requirement, which means that the agreement would also apply to established businesses. This difference may be due to the design of the OSC’s innovation hub, which is aimed at new or early-stage Fintech start-ups that have not commenced operations or are in the process of applying to the OSC for registration or exemptive relief (compared with the FCA’s innovation hub, which is not explicitly restricted to start-ups or new businesses).97 The ASIC–MAS agreement includes an additional provision that is not included in the other agreements relating to potential joint innovation projects between the regulators: ‘The Authorities undertake to consider participating in joint innovation projects on the application of key technologies such as digital and mobile payments, blockchain and distributed ledgers, big data, flexible platforms (API), and other areas of new technologies’.98 The ASIC–OSC agreement leaves it open for other Canadian authorities and regulators to become party to the agreement.99 Comparison with other forms of regulatory cooperation An examination of the structure and the drafting of the agreements reveals significant parallels between these new agreements and the MoUs relating to securities investigations and enforcement discussed in Section 2 of this article, both in the structure of these agreements and their purpose, which is to establish a process for cooperation and assistance. While the subject matter between the two classes of MoUs is different, and it may be that the scope of assistance provided under Fintech MoUs will be more limited, it is apparent from the drafting that Fintech MoUs are modelled on the MMoU and the early bilateral agreements. While the earlier bilateral MoUs were aimed at establishing a process under which regulators could request and provide assistance relating to enforcement and investigations, Fintech MoUs aim to enhance cooperation by entrenching a process under which regulators can support innovative businesses. The earlier MoUs and the MMoU established an arrangement under which the ‘requested authority’ provides assistance to the ‘requesting authority’, while under the Fintech MoUs the mechanism involves the ‘receiving authority’ providing assistance to the innovative business being referred to it by the ‘referring authority’. Table 1 illustrates the similarities between the structure of two typical agreements: the enforcement MoU and the Fintech MoU between ASIC and MAS. Table 1 Comparison between traditional enforcement MoUs and Fintech MoUs Purpose of section of MoU  2000 Bilateral MoU between MAS and ASIC  2016 Fintech MoU between MAS and ASIC  Introduction  Article 1  Article 2  Purpose and Principles  Article 2  Articles 3 and 4*  Definitions  Article 3  Article 1  Referrals/Assistance Mechanism  Article 4 (Scope of Assistance)  Article 5 (clause 5.1–5.5)†  Article 5 (Unsolicited Information)  Article 6 (Requests for Assistance)  Article 7 (Execution of Requests)  Permissible Use of Information and Confidentiality of Requests  Articles 8 and 9  Article 6  Consultations  Article 10  Article 5 (clause 5.7–5.9)†  Amendments, Publication and Termination  Article 11 (Amendments to MoU)  Article 8 (Amendment)  Article 12 (Publication of MoU)  N/A  Article 13 (Termination of MoU)  Article 7 (Term)  Appendix: Contacts  Appendix 1  Appendix A  Purpose of section of MoU  2000 Bilateral MoU between MAS and ASIC  2016 Fintech MoU between MAS and ASIC  Introduction  Article 1  Article 2  Purpose and Principles  Article 2  Articles 3 and 4*  Definitions  Article 3  Article 1  Referrals/Assistance Mechanism  Article 4 (Scope of Assistance)  Article 5 (clause 5.1–5.5)†  Article 5 (Unsolicited Information)  Article 6 (Requests for Assistance)  Article 7 (Execution of Requests)  Permissible Use of Information and Confidentiality of Requests  Articles 8 and 9  Article 6  Consultations  Article 10  Article 5 (clause 5.7–5.9)†  Amendments, Publication and Termination  Article 11 (Amendments to MoU)  Article 8 (Amendment)  Article 12 (Publication of MoU)  N/A  Article 13 (Termination of MoU)  Article 7 (Term)  Appendix: Contacts  Appendix 1  Appendix A  Notes: * The Fintech MoU between ASIC and MAS has a separate section that is titled ‘Principles’, which does not appear in the ASIC-MAS 2000 MoU. However, the substantive part of this section is replicated in other sections of the earlier MoU. For example, the intent of ‘provid[ing] each other with the fullest mutual assistance’ is in Article 4 (scope of assistance); the agreement for the arrangement to be subject to domestic laws and regulations is in clause 2.4. The Principles section in the Fintech MoU also notes that it does not affect the arrangements under a more recent (2014) agreement, which relates to derivatives contracts held in trade repositories. † Article 5 of the Fintech MoU is the main operative part of the MoU, setting out the referral mechanism for the authorities’ innovative functions (clause 5.1–5.5), the potential for joint innovation projects (clause 5.6), and information sharing in relation to innovator businesses and other issues relating to innovations in financial services (5.7–5.9). Article 10 of the 2000 MoU, titled ‘consultations’, covers consultation between authorities on matters including the operation of the MoU and laws and regulations affecting the scope of the MoU. In another sense, however, Fintech MoUs are distinctive at this stage of their development. Fintech MoUs represent a new form of regulatory cooperation that contains elements of both the earlier enforcement MoUs discussed in Section 2, as well as mutual recognition MoUs. Mutual recognition MoUs involve the regulator in one jurisdiction recognizing the determination of a regulator in another jurisdiction for agreed purposes. The element of mutual recognition which is implicit in Fintech MoUs is that they require that referrals ‘will include information demonstrating that the Innovator Business … meets, or would meet, the Referring Authority's Criteria for Support’.100 The provision of this information by the referring authority will entitle the innovator business to obtain support by the receiving authority. While the provision of assistance by the receiving authority does not guarantee authorization will subsequently be provided—indeed, the Fintech MoUs state this explicitly—the mutual recognition aspect of Fintech MoUs is that it is sufficient for a business to meet the referring authority’s criteria for support to obtain support of the receiving authority, even where there are differences between the two sets of criteria. Fintech MoUs are only the first step by domestic regulators seeking to enhance cooperation in relation to Fintech. At this stage it is too early to tell whether Fintech MoUs are working effectively because little information is publicly available on the extent to which they are being used by businesses. For example, ASIC has so far noted only that it has made its first referral to the FCA and that it is in the process of making its first referral to MAS.101 Another challenge in evaluating the effectiveness of these arrangements arises due to the confidentiality provisions surrounding MoUs. Under these provisions regulators will generally not release the information provided under the MoUs except under very specific circumstances. This constraint has been observed in relation to the enforcement MoUs.102 Fintech MoUs incorporate essentially the same confidentiality provisions.103 Potential of Fintech MoUs to enhance regulatory cooperation As discussed in the previous section, to assist Fintech businesses navigate multiple regulatory regimes, regulators have signed bilateral Fintech MoUs with other countries’ regulators that have their own innovation functions. Given the significant utilization of innovation hubs, and the borderless aspects of globalized finance, it is likely that Fintech businesses could benefit by relying on support provided by regulators through Fintech MoUs. Benefits of Fintech MoUs may also flow to regulators. Proactive use of Fintech MoUs would help participating regulators learn about innovative and regulatory developments that are occurring in the region, and globally. This is important in an increasingly complex global regulatory environment. However, similar to the bilateral enforcement MoUs, the usefulness of Fintech MoUs as a mechanism to foster cooperation—at least for now, when these agreements are only beginning to proliferate—is limited by their reach. The extent to which Fintech MoUs will be used by Fintech businesses seeking support in accessing international markets will likely depend on the number of countries that have bilateral agreements with each other. For a Fintech business seeking support in multiple countries the benefits of relying on support via Fintech MoUs increases as the number of connected regulators increases—the alternative involves having to approach each regulator directly. Similarly, the benefits for regulators gained through information-sharing via Fintech MoUs are likely to become more significant as more countries enter such agreements. As it stands, the existence of these agreements is unlikely to entirely address the complexity faced by Fintech businesses seeking to access multiple domestic markets. Complexities will also arise due to the differences in countries’ laws and regulatory approaches. For example, a number of jurisdictions require a business to satisfy certain eligibility criteria to obtain support from their innovation hub. Even if a business qualifies to obtain support from the innovation hub after being referred by its home regulator, it may be unable to obtain a license to operate because of different (eg more stringent) criteria that apply to licenses in the other country.104 There are also broader challenges in achieving effective regulatory cooperation. While the level of disruption occurring as part of the current wave of Fintech is unprecedented, many of the broader regulatory challenges are not new. The principal obstacle for effective cooperation relates not to the mechanisms available to the regulators but in their ability and willingness to proactively use these mechanisms.105 Whether proactive use occurs may depend on a number of factors. For example, it may be a challenge to achieve cooperation when the relevant national preferences—or perceived national preferences—conflict.106 Other challenges include legal obstacles, a reluctance by regulators to relinquish their responsibilities or control to another regulator (or network), or simply a lack of resources.107 In respect of Fintech, there may be a tension between countries’ national preferences because they compete to attract Fintech businesses and entrepreneurs, which reduces the potential for effective cooperation between regulators. However, effective cooperation between regulators could also deliver significant benefits for both regulators and Fintech start-ups, particularly because it would allow the latter to become more sustainable by providing their innovative offerings in a number of jurisdictions without having to navigate different regulatory requirements in each country. Effective cooperation would also help regulators ensure that lawmaking and regulatory design is more proactive, dynamic and responsive. Possible future developments aimed at achieving effective cooperation While a high degree of standardization has already been achieved between the early Fintech MoUs, ultimately, they represent only the initial steps towards achieving regulatory cooperation in this area. Their value will be enhanced if they can evolve into a more extensive system (similarly to the way that the early bilateral enforcement MoUs evolved into a wide-reaching MMoU, as discussed in Section 2), and if they contribute to a general trend towards harmonization or convergence in the domestic regulation of Fintech. While regulators and regulatory networks are still grappling with the challenges posed by Fintech, and regulatory responses to Fintech are still in their inception, there are some encouraging signs of greater regulatory cooperation. Regulators, industry participants and others are aware of the benefits and opportunities that enhanced cooperation in relation to Fintech has to offer.108 The rise of Fintech has prompted IOSCO to release a recent report on Fintech,109 which suggests that the organization is also aware of the potential challenges arising from the global nature of Fintech and the potential role that can be played by increased cooperation and exchange of information between regulators.110 The report outlines a number of Fintech developments, trends in emerging markets, and specific regulatory challenges relating to the various emerging technologies.111 The report also acknowledges the broader challenges for regulators—such as increased regulatory complexity and the implications of Fintech for the regulatory perimeter.112 In terms of regulatory cooperation, IOSCO observes in its report that financial regulators have engaged in multilateral collaboration ‘to a greater degree’ on digital innovation via IOSCO, BIS, the Committee on Payments and Market Infrastructures (CPMI) and the FSB.113 These other TRNs have also been monitoring the rise of Fintech, and have also called for increased international cooperation. For example, the Basel Committee has suggested that increased international cooperation may be beneficial for all parties and has called for greater international regulatory coordination and cooperation, particularly in relation to the regulatory treatment of cross-border Fintech companies.114 The FSB has also noted that Fintech has the potential to both support and undermine financial stability.115 The FSB, observing the need for agencies to discuss cross-border issues surrounding Fintech, and the benefits given the commonalities and global dimension of many Fintech activities, has identified 10 specific issues that it considers merit authorities’ attention, including three it considers to be priorities for international cooperation.116 IOSCO’s proposed EMMoU illustrates that it is looking to build on the success of past cooperative arrangements to ensure they are effective in the current environment, which is characterized by disruptive technology and market-based finance.117 Austin suggests that IOSCO has previously been able to use the MMoU as a ‘carrot’ to incentivize its members to bring their domestic laws in line with some of its principles.118 Austin suggests that ‘given its goals and the success of the MMoU for standardizing some aspects of securities regulation, IOSCO is unlikely to forget the lessons it has learnt’, and that it is likely that IOSCO will continue to use these lessons to develop systems that work towards convergence of securities regulation.119 One way of encouraging convergence of domestic securities laws relating to Fintech would be for IOSCO to require countries to ensure that their domestic laws are consistent with certain principles, which may include principles relating to Fintech, in order to sign up to the new EMMoU (or an MMoU that specifically relates to Fintech if one is established by IOSCO). While such an approach may bring about some level of convergence in domestic laws relating to Fintech, IOSCO’s modest record in achieving convergence suggests that such incremental changes may not be enough to address the challenges posed by Fintech to traditional regulatory approaches. We noted earlier that regulatory cooperation in the area of financial regulation is particularly important because it assists domestic regulators address territorial concerns that arise in an increasingly complex globalized financial economy.120 The events of the GFC shone a spotlight on what has been described as major failures in financial regulatory and supervisory frameworks, highlighting the importance of cross-border regulatory cooperation to address the regulatory gaps.121 The rapid rise and increasing prominence of Fintech businesses in the last few years provide both opportunities and challenges to domestic regulators and TRNs. In particular, the rise of Fintech may test regulators’ ability to operate effectively in an increasingly globalized environment. To be able to perform their function effectively in an environment of increased risk due to technological and legal complexity and an expanding regulatory perimeter requires effective cooperation among regulators at an international level.122 As noted by Chiu: The relocation of financial intermediation processes into the virtual sphere raises implications in terms of globalisation and the reach of territorial regulation, cyber-risks, confidentiality, and shifts in the relational dimensions of the intermediary–client relationship. There is a need for regulators to coordinate with each other at the international level in terms of standard-setting as well as global surveillance, information sharing and enforcement assistance.123 A number of regulators and networks, including IOSCO and the European Commission (EC), are considering ambitious initiatives aimed at enhancing regulatory cooperation in relation to Fintech. ASIC Chairman and former IOSCO Chair Greg Medcraft has suggested that the benefits of Fintech MoUs would be enhanced if they were to evolve into a regional or even global multilateral agreement (eg an agreement similar to the MMoU).124 A multilateral agreement that sets in place appropriate mechanisms for Fintech businesses seeking support in multiple participating countries is likely to significantly reduce the costs for start-ups seeking to scale-up internationally. In particular, it is likely to reduce the costs of navigating multiple sets of laws and regulations in each country. The EC has created a Fintech taskforce, which aims to assess technological developments and business models to determine whether current rules and policies are fit for purpose.125 The taskforce will also consider whether new licensing/passporting regimes are needed.126 In its most recent consultation document on Fintech policy, the EC has noted that ‘it is committed to ensuring that any unjustified legal and practical barriers to setting up and scaling up Fintech services across the Single Market are removed, whilst protecting consumers and monitoring the potential impact on financial stability’.127 One of the options the EC has suggested is introducing basic principles for firm support at EU level, which could ‘eventually lead to an automatic referral system between [innovation] hubs’.128 It is also possible that cross-border regulatory cooperation will occur in the Asian region. One recent multilateral agreement in the region is the Asia Region Funds Passport Memorandum of Cooperation, signed by Australia, Japan, Korea and New Zealand, which aims to provide a multilaterally agreed framework for passporting arrangements to facilitate the cross-border offering of high quality managed funds across participating economies in the Asian region.129 Passporting arrangements have similar objectives to mutual recognition, but operate in a different manner—broadly, under passporting arrangements countries agree on a common set of rules and a single process for registration, while under mutual recognition arrangements, one regulator provides relief to a person or a business from certain regulatory requirements by relying on the other regulator for supervisory oversight.130 A number of benefits are expected to flow from these passporting arrangements to investors, the Asia region fund management industry and the broader state of financial markets in the region.131 The aim is for the Asia Region Funds Passport to be implemented by the end of 2017.132 Greg Medcraft, noting the benefits of the harmonization of regulatory responses and approaches, has suggested that ‘it is possible that we may settle on something close to a “Fintech passport”, easing entry for Fintech developments in each other’s jurisdictions’.133 Recently, MAS signed a memorandum of cooperation with the International Finance Corporation, a member of the World Bank Group, to establish the ASEAN Financial Network (AFIN) with the aim of facilitating broader adoption of Fintech innovation and enhancing economic integration within the region.134 The possibility of harmonized and proportionate regulatory and supervisory requirements for Fintech activities, including passporting within the EU Single Market, has also been floated by the EC.135 Another possible innovative initiative aimed at enhancing cooperation between regulators would be a cross-border regulatory sandbox. Regulatory sandboxes, established by regulators to allow Fintech businesses to test their concepts, represent another key regulatory response to the rise of Fintech. Sandboxes provide an example of regulators looking to shift away from traditional regulatory approaches and to embrace principles of proactive, dynamic and responsive regulation, even though, similarly to Fintech MoUs, the sandboxes are only mechanisms and it is too early to tell whether they will achieve the desired objectives in practice. In any event, the establishment of sandboxes is encouraging from the point of view of Fintech businesses and consumers, because of the potential that they will promote competition and innovation. The sandbox regime also provides an opportunity for regulators to become more engaged in the oversight of new financial technologies by assisting regulators to familiarize themselves with new technological innovations, and monitor their take-up. This assists regulators to ensure that financial regulations remain appropriate in an environment of rapidly-changing technologies, while minimizing the diversion of resources and wasted efforts to understand every new technological innovation.136 These benefits will be enhanced if sandboxes also operate across borders. For example, Fintech businesses will be able to more efficiently test the viability of their concepts in multiple jurisdictions. This is because the burden on these businesses would be lower than if they were required to comply with different laws and sandbox mechanisms in testing their innovative concepts. The possibility of a cross-border regulatory sandbox has already been floated for the EU—however, while this proposal was favoured by most industry respondents, it was opposed by most public authorities.137 The Canadian Securities Administrators (CSA), the umbrella organization of Canada’s provincial and territorial financial regulators, launched a regulatory sandbox initiative in February 2017.138 The CSA notes that its sandbox ‘is open to business models that are truly innovative from a Canadian market perspective’.139 There is currently little detail available on how the sandbox will operate but it appears likely that the CSA sandbox will operate together with the ‘innovation hubs’ and tech staff employed by the securities regulators in the respective Canadian provinces and territories.140 A business will be required at first instance to contact its local securities regulator, which can refer the business to the CSA regulatory sandbox, which can then allow testing of the concepts throughout the Canadian market.141 Because it will span multiple provinces, territories and regulators, the CSA experience may provide an example of how a cross-border regulatory sandbox could operate. The recently-established AFIN is also evaluating options for an industry sandbox, which will comprise ‘a cloud-based marketplace for distribution of FinTech solutions to financial institutions located in multiple jurisdictions’.142 There may also be lessons from these initiatives that can be applied to a Fintech MMoU. We noted earlier that the ASIC–OSC Fintech MoU is drafted in a way to allow other Canadian authorities, such as its provincial and territorial financial regulators, to become party to the agreement. This may indicate that there is already an appetite among some regulators to use the initial agreements as a springboard to establish more enhanced forms of cooperation, such as a multilateral agreement. All of these initial developments are encouraging signs that governments, regulators and TRNs are actively looking at new ways of enhancing regulatory cooperation in relation to Fintech. These developments come at a time when regulators are under increasing scrutiny in the aftermath of the GFC.143 The significance of the challenges posed by the disruptive nature of Fintech may provide a strong impetus for legislators, regulators and TRNs to embrace more ambitious models of regulatory cooperation, which has historically proved difficult to achieve in practice outside the enforcement sphere. Indeed, if enhanced cooperation does eventuate, it would provide an example for other areas of financial regulation. 4. Conclusion The recent trend of regulators establishing bilateral agreements, or Fintech MoUs, suggests that regulators are looking to build on the success of past cooperative arrangements—such as bilateral MoUs relating to investigation and enforcement and the MMoU. These new bilateral agreements set up an initial framework that will connect Fintech businesses to regulators’ innovation hubs in other countries. This kind of direct support is likely to have a significant practical benefit for innovative businesses seeking to operate across borders. However, Fintech MoUs are only the first step in achieving enhanced regulatory cooperation, and there are significant benefits for both regulators and Fintech businesses in further enhancing cooperation in this area. This could be achieved, for example, by the establishment of a multilateral agreement relating to Fintech. The increased proliferation of these agreements, together with the increased focus on—and potential benefits of—greater cooperation between regulators in relation to Fintech raises the prospects of a multilateral agreement or the harmonization of international standards in the future. While there are broader regulatory challenges to achieving effective regulatory cooperation, effective cooperation between regulators in this area could deliver significant benefits. By examining the transition from the early bilateral MoUs entered into by securities regulators in the 1980s and 1990s to the IOSCO MMoU (which may in turn evolve into the EMMoU), and the early developments in relation to Fintech, we have illustrated that cooperation in relation to the latter appears to be following a similar trajectory to the former. When seen through this lens, the initial bilateral Fintech MoUs are analogous to these first bilateral MoUs, which subsequently evolved into an effective cross-border securities enforcement framework. We observed that a high degree of standardization has already been achieved between the first Fintech MoUs, and there have already been discussions among regulators in relation to mutual recognition arrangements such as a Fintech MMoU or Fintech passport. Accordingly, Fintech MoUs present significant potential to result in more developed forms of regulatory cooperation. Footnotes 1 Adrian Fisher, ‘Fintech: The Next Wave of Disruption’ (FinanceAsia, September 2015), <www.financeasia.com/News/401363,fintech-the-next-wave-of-disruption.aspx> accessed 27 May 2017. 2 See Iris H-Y Chiu, ‘The Disruptive Implications of Fintech—Policy Themes for Financial Regulators’ (2017) 21 Journal of Technology Law & Policy 56, 62 (noting that financial innovation often involves more credit creation, which could create systemic risk, and additional complexity, making systems and markets more susceptible to systemic effects). See also Financial Services Authority (FSA), ‘The Turner Review: A Regulatory Response to the Global Banking Crisis’ (March 2009) 14, 47–49 <www.fsa.gov.uk/pubs/other/turner_review.pdf> accessed 27 May 2017 (discussing the role of financial market innovation—in the form of origination, packaging, trading and distribution of securitized credit instruments—in changing the nature of the securitized credit model, the growth and complexity of which contributed to the Global Financial Crisis). 3 Chiu ibid. 4 Chris Brummer, ‘Disruptive Technology and Securities Regulation’ (2015) 84 Fordham Law Review 977, 1037 (discussing the new objectives faced by regulators following the GFC); Chiu (n 2) 68 (discussing the reasons for the new regulatory objectives). 5 Accenture’s Fintech report found that Fintech investment in the Asia-Pacific region more than quadrupled in 2015 to $4.3 billion: see Accenture, ‘Fintech and the Evolving Landscape: Landing Points for the Industry’ (2016) <www.fintechinnovationlablondon.co.uk/pdf/Fintech_Evolving_Landscape_2016.pdf> accessed 27 May 2017. 6 Douglas Arner, Jànos Barberis and Ross P Buckley, ‘The Evolution of Fintech: A New Post-Crisis Paradigm’ (2016) 47 Georgetown Journal of International Law 1271, 1273–74 (discussing Fintech limitations and opportunities in the Asian-Pacific region). Arner et al note the following factors driving the developments of Fintech in Asia: ‘(1) young digitally savvy populations equipped with mobile devices; (2) a fast-growing middle class with 60% of the world's middle class to be located in Asia by 2030; (3) inefficient financial and capital markets creating opportunities for informal alternatives; (4) shortage of physical banking infrastructure; (5) behavioural pre-disposition in favour of convenience over trust; (6) untapped market opportunities (1.2 billion people without bank accounts); and (7) less stringent data protection and competition’ (1299). 7 Chiu (n 2) 82, 92. 8 ‘IOSCO Research Report on Financial Technologies (Fintech)’ (February 2017) <https://www.iosco.org/library/pubdocs/pdf/IOSCOPD554.pdf> accessed 29 May 2017. The Basel Committee and the Financial Stability Board (FSB) have also released reports encouraging closer regulatory cooperation in relation to Fintech: see nn 108–116 and corresponding text. 9 David Zaring, ‘Finding Legal Principle in Global Financial Regulation’ (2012) 52 Virginia Journal of International Law 683, 689. 10 Pierre-Hugues Verdier, ‘Transnational Regulatory Networks and their Limits’ (2009) 34 Yale Journal of International Law 113, 114. 11 Zaring, (n 9) 690 (citing Jeffrey L Dunoff and Joel P Trachtman, ‘Economic Analysis of International Law’ (1999) 24 Yale Journal of International Law 1, 35). 12 In the area of financial regulation, these networks include IOSCO, the Basel Committee on Banking Supervision (Basel Committee), the International Association of Insurance Supervisors (IAIS), the Financial Action Task Force, the Financial Stability Forum, the International Accounting Standards Board and the World Federation of Exchanges. These networks have also appeared in a range of other areas, such as transportation, antitrust, and consumer protection: see David Zaring, ‘Three Challenges for Regulatory Networks’ 43(1) 2009 International Lawyer 211, 211–12. 13 In the early years of network analysis, scholars were impressed with the potential of these networks as a tool of international governance: see, for example, Anne-Marie Slaughter, A New World Order (2004); David Zaring, ‘International Law by Other Means: the Twilight Existence of International Financial Regulatory Organizations’ (1998) 33 Texas International Law Journal 281; Kal Raustiala, ‘The Architecture of International Cooperation: Transgovernmental Networks and the Future of International Law’ (2002) 43 Virginia Journal of International Law 1. Since 2010, as observed by Robert B Ahdieh, the focus on TRNs has been in decline, in part due to the impact of the GFC—because TRNs played only a marginal role in either preventing or responding to the crisis: see Robert B Ahdieh, ‘Coordination and Conflict: The Persistent Relevance of Networks in International Financial Regulation’ (2015) 78 Law and Contemporary Problems 75, 76. See also David Zaring, ‘International Institutional Performance in Crisis’ (2010) 10 Chicago Journal of International Law 475, 478–86; Eric J Pan, ‘Challenge of International Cooperation and Institutional Design in Financial Supervision: Beyond Transgovernmental Networks’ (2010) 11(1) Chicago Journal of International Law 243. Indeed, it has been suggested that the Basel Accords exacerbated the impact of the GFC because they provided national banking regulators the leeway to exempt securitization from global regulation, introducing a ‘regulatory race to the bottom’: see Matthias Thiemann, ‘In the Shadow of Basel: How Competitive Politics Bred the Crisis’ (2014) 21 Review of International Political Economy 1203. TRNs—their successes, failures, potentials and limitations—have been examined extensively by scholars elsewhere, and a detailed examination of these is beyond the scope of our article. 14 ‘About IOSCO’ <www.iosco.org/about/?subsection=about_iosco> accessed 27 May 2017. 15 Chris Brummer, ‘How International Financial Law Works (and How it Doesn’t)’ (2011) 99 Georgetown Law Journal 257, 300; Michael Mann, Paul Leder and Elizabeth Jacobs, ‘The Establishment of International Mechanisms for Enforcing Provisional Orders and Final Judgments arising from Securities Law Violations’ (1992) 55 Law & Contemporary Problems 303. 16 IOSCO, ‘Fact Sheet’ (May 2017) <www.iosco.org/about/pdf/IOSCO-Fact-Sheet.pdf> accessed 6 October 2017. IOSCO was initially established as a cooperative body by securities regulators from North and South America. 17 ibid. 18 Brummer, ‘How International Financial Law Works’ (n 15) 302. 19 IOSCO, ‘A Resolution Concerning Mutual Assistance (“Rio Declaration”)’ (November 1986) <www.iosco.org/library/resolutions/pdf/IOSCORES1.pdf> accessed 27 May 2017. 20 IOSCO Technical Committee, ‘Principles for Memoranda of Understanding’ (September 1991) <www.iosco.org/library/pubdocs/pdf/IOSCOPD17.pdf> accessed 27 May 2017. 21 Verdier (n 10) 144. 22 Pierre-Hugues Verdier, ‘Political Economy of International Financial Regulation’ (2013) 88 Indiana Law Journal 1405, 1434. 23 Chris Brummer, ‘Post-American Securities Regulation’ (2010) 98(2) California Law Review, 327, 337. 24 SEC, ‘Cooperative Arrangements with Foreign Regulators’ <www.sec.gov/about/offices/oia/oia_cooparrangements.shtml/> accessed 6 October 2017. 25 Eduard H Cadmus, ‘Revisiting the SEC’s Memoranda of Understanding: a Fresh Look’ (2011) 33 Fordham International Law Journal 1800, 1839–40. 26 ibid 1858. 27 ibid 1803, 1853. 28 ibid 1851–52. 29 CSRC, ‘List of MoUs Signed between CSRC and Overseas Authorities (as of the end of February 2012)’, <www.csrc.gov.cn/pub/csrc_en/affairs/Cooperation/201203/t20120315_207208.html> accessed 6 October 2017. The CSRC’s website also lists eight more recent MoUs: see CSRC, ‘Regulatory Cooperation’ <www.csrc.gov.cn/pub/csrc_en/affairs/Cooperation/> accessed 6 October 2017. 30 ‘Taiwan, China Seal Financial MOU’ China Post (17 November 2009) <www.chinapost.com.tw/taiwan/china-taiwan-relations/2009/11/17/233003/Taiwan-China.htm> accessed 28 May 2017. 31 SEBI, ‘Bilateral MoUs’ <www.sebi.gov.in/cms/sebi_data/internationalAffr/IA_BilMoU.html> accessed 6 October 2017. SEBI has also signed MoUs relating to Alternative Investment Fund Managers (AIFM): see SEBI, ‘List of 27 Securities Markets Regulators’ <www.sebi.gov.in/cms/sebi_data/internationalAffr/IA_BilMoU_List.html> accessed 6 October 2017. 32 ASIC, ‘Memoranda of Understanding and Other Agreements’ <asic.gov.au/about-asic/what-we-do/international-activities/international-regulatory-and-enforcement-cooperation/memoranda-of-understanding-and-other-international-agreements/> accessed 6 October 2017. 33 Financial Markets Authority, ‘MoUs with other Financial Regulators and Agencies’ <www.fma.govt.nz/fmas-role/what-we-do/how-we-regulate/regulatory-co-operation/mous-with-other-financial-regulators-and-agencies/> accessed 6 October 2017. 34 Brummer, ‘Post-American Securities Regulation’ (n 23) 338. 35 ibid; Brummer, ‘How International Financial Law Works’ (n 15) 302. 36 Brummer, ‘Post-American Securities Regulation’ (n 23) 338. 37 Brummer, ‘How International Financial Law Works’ (n 15) 286. 38 Cadmus (n 25) 1803. 39 ibid 1828. 40 Brummer, observing that fewer than 25% of the world’s regulators had signed MoUs with the US, suggests that these MoUs have had ‘demonstrably limited reach in establishing global enforcement cooperation frameworks’: see Brummer, ‘Post-American Securities Regulation’ (n 23) 346–7. 41 Janet Austin, ‘The Power and Influence of IOSCO in Formulating and Enforcing Securities Regulations’ (2015) 15 Asper Review of International Business and Trade Law 1, 4–5. 42 Cadmus (n 25) 1840–41. 43 ‘About IOSCO’ <www.iosco.org/about/?subsection=about_iosco> accessed 27 May 2017. 44 European Securities and Markets Authority (ESMA), ‘Multilateral Memorandum of Understanding on Cooperation Arrangements and Exchange of Information’ (ESMA/2014/608) <https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-608_mmou_on_cooperation_arrangements_and_information_exchange.pdf> accessed 28 May 2017. The ESMA website notes that the updated MMoU, which entered into force in May 2014, has been signed by over thirty authorities in the securities and markets area: See ESMA, ‘MMoU on Cooperation Arrangements and Exchange of Information’ (2014-608) <https://www.esma.europa.eu/document/mmou-cooperation-arrangements-and-exchange-information> accessed 6 October 2017. 45 ‘IAIS Multilateral Memorandum of Understanding on Cooperation and Information Exchange’ (February 2007, revised July 2014) <https://www.iaisweb.org/page/supervisory-material/mmou//file/34363/iais-mmou> accessed 28 May 2017. There are currently 63 signatories to the IAIS MMoU: see IAIS, ‘MMoU Signatories Listed Alphabetically (By Jurisdiction)’ <https://www.iaisweb.org/page/supervisory-material/mmou-signatories/> accessed 6 October 2017. 46 Brummer, ‘Post-American Securities Regulation’ (n 23) 367. 47 ibid 372, 380. 48 Brummer notes that IOSCO membership and its attendant advantages are used to persuade regulators to sign the MMoU and to obtain the legal authority to become a signatory. Further, to participate in the MMoU, a regulator must demonstrate to IOSCO that it has the ability to comply with its provisions. See Brummer, ‘How International Financial Law Works’ (n 15) 301; Brummer, ‘Post-American Securities Regulation’ (n 23) 367. 49 IOSCO, ‘Signatories to Appendix A and Appendix B List’ <www.iosco.org/about/?subSection=mmou&subSection1=signatories> accessed 6 October 2017. 50 The scope of assistance is set out in para 7 of the MMoU, while the specific types of offences for which information requests can be made (including insider dealing, market manipulation and fraudulent or manipulative practices relating to securities and derivatives, among others) are set out in para 4 of the MMoU. 51 ‘About IOSCO’ <www.iosco.org/about/?subsection=about_iosco> accessed 27 May 2017. 52 Verdier, ‘Transnational Regulatory Networks’ (n 10) 146. See also Verdier, ‘Political Economy’ (n 22) 1439–40 (noting that in respect of enforcement and supervision cooperation, ‘the interests of the principal political actors were also aligned in favour of cooperation’). 53 Brummer, ‘Post-American Securities Regulation’ (n 23) 373. 54 Verdier, ‘Transnational Regulatory Networks’ (n 10) 146. 55 IOSCO, ‘IOSCO Approves the Enhanced Standard for Cross-Border Enforcement Cooperation’, (IOSCO/MR/07/2017, Media Release, 31 March 2017) <www.iosco.org/news/pdf/IOSCONEWS456.pdf> accessed 28 May 2017. 56 See IOSCO, ‘Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information’ <www.iosco.org/about/?subsection=emmou> accessed 28 May 2017. These new powers are referred to as the ACFIT powers. 57 ibid. 58 One of the requirements for eligibility to participate in the scheme is that the relevant regulator is a signatory to Appendix A of the MMoU: see Asia-Pacific Economic Cooperation (APEC), ‘Memorandum of Cooperation on the Establishment and Implementation of the Asia Region Funds Passport’ (28 April 2016) para 10.1(a) <fundspassport.apec.org/files/2016/06/28-April-2016-Asia-Region-Funds-Passport-Memorandum-of-Cooperation-signed-by-Australia-Japan-Korea-NZ.pdf> accessed 28 May 2017. 59 For example, foreign investors who seek to make portfolio investments in India must be residents in countries that are signatories to the MMoU, or have signed a bilateral MoU with SEBI: see Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations 2014 (Regulation Number LAD-NRO/GN/2013-14/36/12) s 4(b) <http://www.sebi.gov.in/sebi_data/attachdocs/1389083605384.pdf> accessed 28 May 2017. Hong Kong requires an overseas company seeking to be listed on the Hong Kong exchange to be incorporated in a jurisdiction that is a signatory to the MMoU, or has signed a bilateral MoU with the Hong Kong securities regulator, the Securities and Futures Commission (SFC): see SFC and Hong Kong Exchanges and Clearing Limited (HKEx), ‘Joint Policy Statement Regarding the Listing of Overseas Companies’ (Policy Statement, 27 September 2013) 7 <www.sfc.hk/web/files/ER/PDF/13PR98_statement.pdf> accessed 28 May 2017. 60 Cadmus (n 25) 1841. 61 Verdier, ‘Transnational Regulatory Networks’ (n 10) 147. Verdier’s observations relate to the MMoU; however, the same can be said of the MoUs relating to enforcement. 62 André Dao, Andrew Godwin and Ian Ramsay, ‘From Enforcement to Prevention: International Cooperation and Financial Benchmark Reform’ (2016) 10(2) Law and Financial Markets Review 83, 92. 63 Verdier, ‘Transnational Regulatory Networks’ (n 10) 147. Verdier (n 10) 150, suggests that IOSCO principles have generally been pitched at a general level and are aimed at avoiding ‘precise normative pronouncements on potentially controversial issues’, which would limit their ability to achieve convergence. Zaring suggests that IOSCO has been unable to obtain agreement in relation to several other issues, illustrating the issues faced by TRNs in facilitating convergence. The examples cited by Zaring relate to implementing uniform capital adequacy rules for securities firms (see also David Andrew Singer, ‘Capital Rules: The Domestic Politics of International Regulatory Harmonization’ (2004) 58 International Organization 531, 546–49), and developing or facilitating global accounting standards: see Zaring, ‘Three Challenges for Regulatory Networks’ (n 12) 213; Zaring, ‘Financial Regulation’s Overlooked Networks’ in Ross P Buckley, Emilios Avgouleas and Douglas W Arner (eds), Reconceptualising Global Finance and its Regulation (Cambridge 2016) 82–86. 64 IOSCO, ‘Objectives and Principles of Securities Regulation’ (June 2010) <www.iosco.org/library/pubdocs/pdf/IOSCOPD323.pdf> accessed 28 May 2017. See, generally, Austin (n 41) 14–16. Austin also suggests that IOSCO is able to facilitate convergence in securities laws because its ‘numerous policy statements often become a first reference point’ to guide domestic policy-makers. As part of its efforts to achieve convergence of securities laws, IOSCO has adopted a number of consultative papers, voluntary standards and best practices. 65 ‘About IOSCO’ <www.iosco.org/about/?subsection=about_iosco> accessed 27 May 2017. The FSB, which was established in April 2009 as the successor to the Financial Stability Forum (FSF), is an international body that monitors the global financial system to promote international financial stability. The FSF had been founded by the G7 Finance Ministers and Central Bank Governors, but its membership was broadened in April 2009. The secretariat of the FSB is at the BIS. 66 Austin (n 41) 6–7. 67 ibid 6. 68 See IOSCO, ‘Multilateral Memorandum of Understanding Concerning Consultation and Co-operation and the Exchange of Information (MMoU): Frequently Asked Questions’ 7–8 <www.iosco.org/library/mou/pdf/MoU-FAQS.pdf> accessed 28 May 2017. 69 Austin (n 41) 21–2. 70 Verdier had predicted that offshore financial centres would have strong incentives to resist cooperation: see Verdier, ‘Transnational Regulatory Networks’ (n 10) 147–9. 71 Austin (n 41) 7, 22. 72 Technical Committee of IOSCO, ‘Principles Regarding Cross-Border Supervisory Cooperation’ (May 2010), <www.iosco.org/library/pubdocs/pdf/IOSCOPD322.pdf> accessed 28 May 2017. These mechanisms are examined in the context of cooperation in relation to financial benchmark reform by Dao, Godwin and Ramsay (n 62). 73 IOSCO ibid 8. 74 Dao, Godwin and Ramsay (n 62) 95. 75 Verdier, ‘Transnational Networks and their Limits’ (n 10) (discussing the limitations of TRNs when national preferences conflict and when enforcement of the agreed terms is required); Brummer, ‘Post-American Securities Regulation’ (n 23) 349–55 (discussing challenges to TRNs, such as differences in regulatory philosophies between domestic regulators). 76 According to an Accenture study, first quarter global Fintech investment increased to $5.3 billion in 2016. The study notes that over $50 billion has been invested in the industry since 2010: see Accenture (n 5). 77 For example, Singapore has invested S$225 million ($167 million) over the next five years to growing the Fintech segment in Singapore: see Ravi Menon, Managing Director, Monetary Authority of Singapore (MAS), ‘A Smart Financial Centre’ (speech delivered at the Global Technology Law Conference, Singapore, 29 June 2015) <www.mas.gov.sg/news-and-publications/speeches-and-monetary-policy-statements/speeches/2015/a-smart-financial-centre.aspx> accessed 28 May 2017. In Australia, the Federal government has introduced a number of measures in order to support Australian Fintech businesses, such as venture capital tax concessions as part of its National Innovation and Science Agenda: see Australian Government, ‘Backing Australian Fintech’ (2016) <Fintech.treasury.gov.au/files/2016/03/Fintech-March-2016-v3.pdf> accessed 28 May 2017. 78 Arner, Barberis and Buckley (n 6) 1272; Marc Hochstein, ‘Fintech (the Word, That Is) Evolves’ (American Banker, October 2015) <https://www.americanbanker.com/opinion/fintech-the-word-that-is-evolves> accessed 28 May 2017 (observing that the term’s origin can be traced to the name Citicorp—a predecessor of Citigroup—gave to its Financial Service Technology Consortium). 79 Fisher (n 1) (referring to Western Union’s provision of money transfer services by way of the telegraph as early as the 1870s, and early versions of Visa and Mastercard payment networks established in the 1950s and 1960s). For a history of Fintech see Arner, Barberis and Buckley (n 6). 80 Arner, Barberis and Buckley (n 6). Arner, Barberis and Buckley attribute the emergence of Fintech to ‘(1) financial market deficiencies caused by the GFC and the regulatory response to it; (2) public distrust in the financial services industry, particularly in the US and EU; (3) political pressure for alternative sources of finance for small and medium enterprises; (4) unemployed financial professionals looking to apply their talents; and (5) the commoditization of technology and the market penetration of the internet and mobile phones, particularly smart phones’: see Douglas Arner, Jànos Barberis and Ross P Buckley, ‘Fintech, Regtech and the Reconceptualization of Financial Regulation’ (forthcoming, 2017) Northwestern Journal of International Law and Business <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2847806> accessed 28 May 2017. An empirical study of Fintech start-ups found that countries experience more Fintech start-up formations when capital markets are well-developed, the latest technology is readily available, and people possess more mobile telephone subscriptions. The study also found that the available labour force has a positive impact on the number of Fintech start-ups, while the soundness of the financial system has a negative impact (the more sound the financial system in each country, the lower the number of start-ups): see Christian Haddad and Lars Hornuf, ‘The Emergence of the Global Fintech Market: Economic and Technological Determinants’ (CESIFO Working Paper 6131, October 2016) <https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2830124> accessed 28 May 2017. 81 For example, the FCA’s innovation hub has the broad objective of fostering innovation in financial services in the interests of consumers by providing support for, and engaging with, innovator businesses. See FCA, ‘Objectives of Innovation Hub’ <https://www.fca.org.uk/firms/project-innovate-innovation-hub/objectives> accessed 28 May 2017. 82 For example, to obtain support from the FCA’s innovation hub, the application needs to show that: (1) the product is a genuine innovation ie it is ground-breaking or significantly different; (2) the innovation offers a good prospect of identifiable benefit to consumers (either directly or via heightened competition); (3) the business has invested appropriate resources in background research to understand the regulations; and (4) the business has a genuine need for support through the innovation hub. See FCA, ‘Criteria for Support’ <https://www.fca.org.uk/publication/forms/project-innovate-criteria.pdf> accessed 28 May 2017. 83 Erik Vermeulen, Mark Fenwick and Wulf A Kaal, ‘Regulation Tomorrow: What Happens when Technology is Faster than the Law’ (TILEC discussion paper 2016-024, October 2016) <http://ssrn.com/abstract=2834531> accessed 28 May 2017. 84 Greg Medcraft, ASIC Chairman and Former Chairman of IOSCO, ‘Cross-border Innovation: Enabling Fintech and Regtech Innovations Across Borders’ (speech delivered at the International Institute of Finance Chief Risk Officer Forum, Singapore, 16 November 2016) <download.asic.gov.au/media/4080335/greg-medcraft-speech-iif-cro-forum-published-17-november-2016.pdf> accessed 28 May 2017. Regtech—a contraction of the terms ‘regulatory’ and ‘technology’—has evolved to help reduce the reliance of regulators on manual inputs and reduce costs. It has been observed that more than 120 start-ups already provide Regtech solutions. See Citi GPS, ‘Digital Disruption—Revisited’ (January 2017), 39 <https://ir.citi.com/FIanoC50Aw5dWM7kPzoLKU3buhKF1LETHM1deMYw1%2F2zNzWFg8zmYw%3D%3D> accessed 28 May 2017. It has also been suggested that Regtech will allow regulators to use an ever-expanding range of techniques in order to keep up with the rapid evolution of markets. See Lawrence G Baxter, ‘Adaptive Financial Regulation and Regtech: A Concept Article on Realistic Protection for Victims of Bank Failures’ (2016) 66 Duke Law Journal 567, 598; Arner, Barberis and Buckley ‘Fintech, Regtech and the Reconceptualization of Financial Regulation’ (n 80). Regulators have also made efforts to remain engaged in this space: for example, ASIC has released a report outlining its current initiatives and its proposed future approach in relation to Regtech: see ASIC, ‘Report 523: ASIC’s Innovation Hub and our Approach to Regulatory Technology’ (26 May 2017) <download.asic.gov.au/media/4270022/rep523-published-26-may-2017.pdf> accessed 30 May 2017. 85 There have been calls for governments to engage in international dialogue to help establish an international Fintech presence: see, for example, Digital Finance Institute and McCarthy Tétrault LLP, ‘FinTech in Canada—Towards Leading the Global Financial Technology Transition (British Columbia Edition)’ (2016) 46, 47 <www.digitalfinanceinstitute.org/wp-content/uploads/2016/09/Fintech-Report-2016-1.pdf> accessed 28 May 2017 (noting that governments and public bodies in Canada can support the Fintech sector in four key ways: (1) investing in Canadian FinTech; (2) supporting FinTech co-working spaces in accelerators; (3) creating a regulatory sandbox; and (4) helping establish both a national and an international FinTech presence and supporting the engagement of international dialogue with industry organizations). 86 ‘Innovation Hubs Co-operation Agreement between FCA and ASIC’ (23 March 2016) (‘FCA-ASIC Agreement’) <download.asic.gov.au/media/3797602/fca-asicagreementsigned230316-1.pdf> accessed 28 May 2017. In the UK, the term ‘FinTech bridges’ refers to government, private sector and regulatory arrangements, of which the Fintech MoUs form part. Some, though not all, of the Fintech MoUs have been entered into as part of FinTech bridges. 87 See, eg ‘Co-operation Agreement between FCA and MAS’ (11 May 2016) <https://www.fca.org.uk/publication/mou/fca-monetary-authority-of-singapore-co-operation-agreement.pdf> accessed 28 May 2017; ‘Innovation Functions Co-operation Agreement between ASIC and MAS’ (16 June 2016) (‘ASIC-MAS Agreement’) <download.asic.gov.au/media/3898678/mas-mou-june-2016.pdf> accessed 28 May 2017; ‘Innovation Functions Co-operation Agreement between ASIC and OSC’ (1 November 2016) (‘ASIC-OSC Agreement’) <download.asic.gov.au/media/4062001/asic-osc-cooperation-agr-executed-nov-1-2016.pdf> accessed 28 May 2017; ‘Co-operation Agreement between FCA and HKMA’ (7 December 2016) (‘FCA-HKMA Agreement’) <https://www.fca.org.uk/publication/mou/fca-hkma-co-operation-agreement.pdf> accessed 28 May 2017; ‘Co-operation Agreement between ASIC and SFC’ (13 June 2017) <http://download.asic.gov.au/media/4288984/asic-hksfc-agreement-20170613.pdf> accessed 6 October 2017; ‘Innovation Functions Cooperation Agreement between ASIC and the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA)’ (July 2017) <http://download.asic.gov.au/media/4400645/abu-dhabi-asic-mou-july-2017.pdf> accessed 6 October 2017; ‘Innovation Cooperation Agreement between ASIC and Securities Commission Malaysia’ (June 2017) <http://download.asic.gov.au/media/4376907/fintech-cooperation-agreement-asic-and-sc-malaysia.pdf> accessed 6 October 2017; ‘Cooperation Agreement between SFC and Securities Commission Malaysia’ (14 September 2017) <http://www.sfc.hk/web/EN/files/ER/MOU/MOU_Securities%20Commission%20Malaysia_14.9.2017.pdf> accessed 6 October 2017; ‘Innovation Functions Co-operation Agreement between FCA and OSC’ (22 February 2017) <https://www.fca.org.uk/publication/mou/fca-osc-co-operation-agreement.pdf> accessed 28 May 2017; ‘Co-operation Agreement between FCA and SFC’ (12 May 2017) <https://www.fca.org.uk/publication/mou/fca-sfc-co-operation-agreement.pdf> accessed 28 May 2017. 88 In addition to the MoU it has signed with Australia (n 87), MAS has signed an MoU with France’s Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers, Japan’s Financial Services Agency, ADGM, the Bank of Thailand, and the Association of Supervisors of Banks of the Americas (an umbrella organization that includes 41 financial sector regulation and supervision agencies). See MAS, ‘Singapore and France bolster FinTech ties with cooperation agreements’ (Media Release, 27 March 2017) <www.mas.gov.sg/News-and-Publications/Media-Releases/2017/Singapore-and-France-bolster-FinTech-ties-with-cooperation-agreements.aspx> accessed 28 May 2017; MAS, ‘Singapore and Japan establish FinTech Cooperation Framework’ (Media Release, 13 March 2017) <www.mas.gov.sg/News-and-Publications/Media-Releases/2017/Singapore-and-Japan-establish-FinTech-Cooperation-Framework.aspx> accessed 28 May 2017; MAS, ‘MAS and ADGM Collaborate to Foster FinTech Innovation and Cross-Border Activities’ (Media Release, 8 March 2017) <www.mas.gov.sg/News-and-Publications/Media-Releases/2017/Monetary-Authority-of-Singapore-and-Abu-Dhabi-Global-Market.aspx> accessed 28 May 2017; MAS, ‘Bank of Thailand and MAS sign FinTech Cooperation Agreement and Banking Supervision MoU’ (Media Release, 11 July 2017) <http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/Bank-of-Thailand-and-Monetary-Authority-of-Singapore.aspx> accessed 6 October 2017; and MAS, ‘MAS and ASBA sign FinTech MoU’ (Media Release, 9 June 2017) <http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/MAS-and-ASBA-sign-FinTech-MOU.aspx> accessed 6 October 2017. 89 FCA, ‘Financial Regulators of Japan and UK Announce Exchange of Letters on Co-operation Framework to Support Innovative FinTech Companies’ (Media Release, 9 March 2017) <https://www.fca.org.uk/news/press-releases/financial-regulators-japan-and-uk-announce-exchange-letters-co-operation> accessed 28 May 2017; ASIC, ‘Japan and Australia Cooperate on Fintech’ (Media Release, 23 June 2017) <http://asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-199mr-japan-and-australia-cooperate-on-fintech/> accessed 6 October 2017. More recently, Japan has also entered into a Fintech agreement with ADGM. 90 See, for example, clause 3.1 of FCA–ASIC agreement, ASIC–OSC agreement, and ASIC–MAS agreement. 91 ibid. 92 If the business has commenced operations it is also required to provide a progress report on operations. See ‘International Referral Request Form’ <download.asic.gov.au/media/4007296/international-referral-request-sept-2016.docx> accessed 28 May 2017. The form does not require the business to specify which jurisdiction it will seek referral for so presumably it can be used by a business to seek a referral to more than one jurisdiction, if desired. 93 See, for example, clauses 2.4.1 and 2.4.2 of the ASIC–FCA and ASIC–MAS agreements. 94 Assistance during the pre-authorization phase may include discussions of the application process and any regulatory issues identified by the business, and ensuring that the business understands the regulatory regime. During the authorization process, the authority will allocate staff that are knowledgeable about financial innovation to consider the application, and possibly implement a specialized process for innovator businesses. After a business is authorized, the business is provided with a dedicated contact for assistance. The ASIC–MAS and ASIC–FCA agreements limit the period of time during which assistance is provided after authorization to one year; however the ASIC–OSC agreement does not include a time limitation for the provision of assistance. 95 ‘Co-operation Agreement between ASIC and Capital Markets Authority of Kenya (“CMA”)’ (21 October 2016) <download.asic.gov.au/media/4052135/asic-cma-fintech_cooperation_agreement-1.pdf> accessed 28 May 2017; ‘Co-operation Agreement between ASIC and OJK’ (21 April 2017) <download.asic.gov.au/media/4223673/asic-ojk-mou-agreement-signed-21042017.pdf> accessed 28 May 2017; ‘Co-operation Agreement between FCA and Financial Services Commission of the Republic of Korea (“FSC”)’ (22 July 2016) <https://www.fca.org.uk/publication/mou/fca-korean%20fsc-co-operation-agreement.pdf> accessed 28 May 2017; ‘Co-operation Agreement between FCA and People’s Bank of China (“PBOC”)’ (11 November 2016) <https://www.fca.org.uk/publication/mou/fca-pboc-co-operation-agreement.pdf> accessed 28 May 2017. 96 That is, for a business to be referred by either regulator it will have needed to satisfy this criteria. 97 OSC, ‘OSC LaunchPad Request for Support’, criteria C1 <https://www.osc.gov.on.ca/documents/en/osc-launchpad-request-for-support_v2.pdf> accessed 29 May 2017. 98 ASIC–MAS Agreement clause 5.6. A similar clause is included in the more recent MoU between the SFC and Securities Commission Malaysia (clause 5.3). 99 ASIC–OSC Agreement clause 8.2. 100 See eg ASIC–MAS Agreement clause 5.2. 101 ASIC, ‘Fintech: ASIC’s Approach and Regulatory Issues’ (Melbourne Money and Finance Conference, July 2016) <download.asic.gov.au/media/3962105/melbourne-money-and-finance-conference-2016-fintech.pdf> accessed 29 May 2017. More recently, ASIC also noted that it has received two referrals through its Fintech MoUs: see ASIC, ‘Report 523’ (n 84) para 45. 102 For example, Cadmus’ review of SEC MoUs notes that confidentiality provisions included in the MoUs limit meaningful study. Cadmus discusses the drafting of regulatory MoUs and the existence of an exception to the US Freedom of Information Act covering exchanges with foreign financial regulators. Cadmus suggests that ‘an evaluation of [the MoUs’] effectiveness should be carried out by the SEC or another body with access to confidential files obtained from foreign regulators’. See Cadmus (n 25) 1803. 103 As noted above, there are significant parallels between the enforcement MoUs and Fintech MoUs, and the confidentiality provisions are another example of this. For example, the confidentiality clause discussed by Cadmus, (n 25) 1856, in the SEC’s enforcement MoU with Argentina is essentially the same as clause 6.4 of the ASIC–OSC Agreement (n 87). 104 As noted above, while the referred business qualifies for assistance from the ‘receiving authority’, this does not guarantee authorization. See eg ASIC–OSC Agreement clause 5.5. 105 Dao, Godwin and Ramsay (n 62) 95. 106 Verdier, Brummer (n 75). 107 IOSCO, ‘Principles Regarding Cross-Border Supervisory Cooperation’ (n 72) 15. 108 For example, Greg Medcraft has stressed the importance of using ‘formal and informal communication channels … to work toward aligning our philosophies and approaches to regulation’: see Medcraft (n 84) 4. See also Arup Kumar Chatterjee (Asian Development Bank), ‘Why the Sandbox Approach Works for Fintech Development’ (Asian Development Blog, 24 May 2016) <https://blogs.adb.org/blog/why-sandbox-approach-works-fintech-development> accessed 29 May 2017 (noting the lower regulatory barriers for Fintech companies that will result due to the MoUs). 109 IOSCO, ‘Research Report on Fintech’ (n 8). 110 ibid 70. 111 ibid chs 2–5. 112 ibid 70–74. The report also briefly notes other challenges such as digital onboarding, cyber security and data protection concerns, investor literacy and investor education, and the need for regulators to stay up-to-date with financial innovation (by establishing dedicated offices, contact points and hubs, or regulatory sandboxes). 113 ibid 70. 114 Basel Committee, ‘Sound Practices: Implications of Fintech Developments for Banks and Bank Supervisors’, (Consultative Document, August 2017), 33 <http://www.bis.org/bcbs/publ/d415.htm> accessed 6 October 2017. 115 FSB, ‘Financial Stability Implications from Fintech: Supervisory and Regulatory Issues that Merit Authorities’ Attention’ (27 June 2017) <http://www.fsb.org/wp-content/uploads/R270617.pdf> 13 accessed 6 October 2017. 116 ibid. The three priority areas cited are (1) managing operational risks from third-party service providers; (2) mitigating cyber risks; and (3) monitoring macro-financial risks. The other issues are: (4) cross-border legal considerations and regulatory arrangements; (5) governance and disclosure frameworks supporting big data analytics; (6) assessing the regulatory perimeter and updating it on a timely basis; (7) shared learning with a diverse set of private sector parties; (8) further developing open lines of communication across relevant authorities; (9) building staff capacity in new areas of required expertise; and (10) studying alternative configurations of digital currencies. 117 IOSCO, ‘EMMoU’ (n 56). 118 Janet Austin, ‘IOSCO’s Multilateral Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information’ (2012) 23 Criminal Law Forum 393. 119 ibid 419. 120 n 9 and corresponding text. 121 European Parliament, ‘Special Committee on the Financial, Economic and Social Crisis’ (Documentation Relating to the Committee’s Work from October 2009 to July 2011, July 2011) 157 <http://www.europarl.europa.eu/document/activities/cont/201109/20110901ATT25750/20110901ATT25750EN.pdf> accessed 29 May 2017. 122 Chiu (n 2) 92. 123 ibid. 124 Medcraft (n 84). 125 Olivier Guersent, EC Director-General, Financial Stability, Financial Services and Capital Markets Union, ‘Speech at the Swiss Finance Council’ (7 March 2017) <https://ec.europa.eu/info/sites/info/files/olivier-guersent-speech-swiss-finance-07032017_en.pdf> accessed 29 May 2017. 126 ibid. 127 EC, ‘Consultation Document—Fintech: A More Competitive and Innovative European Financial Sector’ (May 2017) 15 <https://ec.europa.eu/info/sites/info/files/2017-fintech-consultation-document_en_0.pdf>. 128 ibid 17. 129 APEC, ‘Asia Region Funds Passport’ (n 58). The agreement came into effect in June 2016. An example of a mutual recognition MoU exists between Australia and the US covering securities exchanges and broker–dealers. See ‘Mutual Recognition Arrangement between the United States Securities and Exchange Commission and the Australian Securities and Investments Commission, together with the Australian Minister for Superannuation and Corporate Law’ (25 August 2008) <download.asic.gov.au/media/1346672/SEC_framework_arrangement_aug_08.pdf> accessed 29 May 2017. This arrangement, as well as mutual recognition more broadly, is discussed by Verdier: see Pierre-Hugues Verdier, ‘Mutual Recognition in International Finance’ (2011) 52 Harvard International Law Journal 56. Another example of a mutual recognition MoU was implemented between ASIC and the SFC, in relation to collective investment schemes; however it has been observed that this arrangement has had limited effect due to taxation issues and the difficulties of international investors in understanding the responsible entity structure for management investment schemes in Australia: see Andrew Godwin and Ian Ramsay, ‘The Asia Region Funds Passport Initiative: Challenges for Regulatory Co-ordination’ (2015) International Company and Commercial Law Review 236, 238. 130 Godwin and Ramsay ibid 238. One area in which mutual recognition arrangements have been particularly relevant is the OTC derivatives market reforms: see Andrew Godwin, Ian Ramsay and Edwin Sayes, ‘Assessing Financial Regulatory Coordination and Integration with reference to OTC Derivatives Regulation’ (2017) 12(1) Capital Markets Law Journal 38. 131 APEC, ‘Consultation Paper: Arrangements for an Asia Region Funds Passport’ (16 April 2014) <http://treasury.gov.au/ConsultationsandReviews/Consultations/2014/Asia-Region-Funds-Passport> accessed 29 May 2017. 132 NZ Ministry of Business Innovation & Employment Asia Region Funds Passport, ‘Asia Region Funds Passport’ <http://www.mbie.govt.nz/info-services/business/business-law/asia-region-funds-passport> accessed 29 May 2017. 133 Medcraft (n 84) 4. 134 MAS, ‘IFC and Monetary Authority of Singapore Collaborate to Advance FinTech Innovation in Asia’ (Media Release, 23 May 2017) <http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/IFC-and-Monetary-Authority-of-Singapore-Collaborate-to-Advance-FinTech-Innovation-in-Asia.aspx> accessed 30 May 2017. 135 EC, ‘Consultation Document’ (n 127) 16. 136 Arner, Barberis and Buckley, (A New Post-Crisis Paradigm) (n 6) 1307. For an examination of the key differences between the sandbox regimes that have been implemented to date, see Lev Bromberg, Andrew Godwin and Ian Ramsay, ‘Fintech Sandboxes: Achieving a Balance between Regulation and Innovation’ (2017) 28 Journal of Banking and Finance Law and Practice (forthcoming). 137 EC, ‘Consultation Document’ (n 127) 15; EC, ‘Summary of Contributions to the “Public Consultation on FinTech: a more Competitive and Innovative European Financial Sector”’ (2017) 9 <https://ec.europa.eu/info/sites/info/files/2017-fintech-summary-of-responses_en.pdf> accessed 6 October 2017. 138 CSA, ‘Canadian Securities Administrators Launches a Regulatory Sandbox Initiative’ (Media Release, 23 February 2017) <www.osc.gov.on.ca/en/NewsEvents_nr_20170223_regulatory-sandbox.htm> accessed 29 May 2017. 139 ibid. 140 For example, the OSC has created a new innovation hub called ‘LaunchPad’: see OSC, ‘About OSC Launchpad’ <https://www.osc.gov.on.ca/en/about-osc-launchpad.htm> accessed 29 May 2017. 141 CSA, ‘Regulatory Sandbox Initiative’ (n 138). 142 MAS (n 134). 143 FSA ‘Turner Review’ (n 2); nn 120–23 and corresponding text. © The Author(s) (2017). 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Cross-border cooperation in financial regulation: crossing the Fintech bridge

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Oxford University Press
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1750-7219
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1750-7227
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Abstract

Key points This article examines the implications of the rise of Fintech for achieving effective cooperation in the area of financial regulation. While the disruptive and transformative impacts of Fintech pose significant challenges for domestic regulators, Fintech also presents opportunities to enhance cross-border regulatory cooperation, which is particularly important in an increasingly complex globalized financial economy. To provide insights into the way in which regulatory cooperation in relation to Fintech can evolve, we examine the role played by domestic regulators and the International Organization of Securities Commissions in establishing a cross-border securities enforcement framework. We show how the initial steps by financial regulators to enter into bilateral Fintech agreements have the potential to translate into more substantial and wide-reaching cooperative arrangements. 1. Introduction Fintech, which refers to the use of technology in providing financial services, is an increasingly important phenomenon in the financial services sector.1 Fintech provides both economic benefits (via increased competition, efficiency and innovation) and opportunities for increasing levels of financial inclusion. However, it also comes with risks. These risks can affect individual users of new Fintech offerings or schemes that are fraudulent or susceptible to cyber-attacks. Importantly, the rapid rise of Fintech may also affect broader financial and economic systems.2 The balancing act involved for governments and regulators in developing appropriate regulatory responses to Fintech innovation requires the weighing-up of the potential benefits of innovation with the risks to consumers, investors and the broader financial systems. It also involves a reconsideration of financial regulatory regimes that have traditionally been focused on financial institutions such as banks.3 Fintech requires cross-border regulatory cooperation because of the globalization of markets and the disruptive nature of Fintech businesses. Following the Global Financial Crisis (GFC), financial regulators have been required to address a broader set of regulatory objectives and policy priorities, within an expanded regulatory perimeter and an increasingly complex technological landscape.4 Other legal and regulatory issues include privacy, data protection, cyber security, digital disclosure, money laundering and financial crime. Addressing these issues is particularly important in the developing world, including in Asia, where Fintech growth has recently been most rapid5 and where the Fintech industry is becoming a central feature of financial market development.6 In an environment of rapidly evolving, technologically complex and disintermediated financial services markets, financial regulators face significant challenges in designing appropriate regulatory regimes governing Fintech and achieving cross-border regulatory coordination.7 In this article we examine the recent rise of bilateral regulatory Memoranda of Understanding in the area of Fintech, which represent the first steps taken by regulators to establish formal agreements aimed at facilitating cooperation relating to Fintech and supporting innovation. The establishment of these Memoranda of Understanding (Fintech MoUs) follows calls by regulatory networks such as the International Organization of Securities Commissions (IOSCO) to move towards closer regulatory cooperation, as reflected in the recent IOSCO report on Fintech;8 however, Fintech MoUs are quite distinctive (and untested) at this stage of their development. In order to understand the purpose and role of Fintech MoUs—and their potential to result in more developed forms of regulatory cooperation—this article locates Fintech MoUs within the panoply of different forms of regulatory cooperation and considers the extent to which they can draw on, and inform the development and extension of, those established forms of regulatory cooperation. We outline some of the key forms of regulatory cooperation and their benefits and limitations in Section 2 of the article. We focus in particular on bilateral regulatory cooperation agreements (Memorandums of Understanding or MoUs), including those that have been entered into under the auspices of IOSCO, an organization that represents securities regulators. We illustrate how these MoUs eventually evolved into a broader cross-border securities enforcement framework: the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU). Section 3 examines the experience to date of Fintech MoUs and their potential to draw on, and inform the development and extension of, the forms of regulatory cooperation discussed in Section 2. Section 4 concludes. 2. Enhancing regulatory cooperation between securities regulators: from bilateral agreements to multilateral arrangements Because Fintech is a recent phenomenon, cross-border regulatory cooperation in this area is in its very early stages and is largely untested. This part of the article provides a general overview of the key forms of cross-border regulatory cooperation in the area of securities supervision and enforcement in order to establish the context for an examination of Fintech MoUs and their potential development in Section 3. The proliferation of bilateral MoUs Cooperation in the area of securities regulation is important because it assists regulators address territorial concerns that arise in an increasingly complex globalized market, but one that is primarily regulated by domestic agencies. These agencies have oversight over only a small part (the domestic part) of large businesses and inter-related global markets.9 In the area of securities regulation there are multiple sets of sometimes contradictory national securities laws that apply to transnational securities transactions.10 Hypothetically, such broad concerns could be dealt with by the establishment of a treaty or by having harmonized securities laws. However, treaties are ‘expensive, difficult to conclude, negotiated by diplomats, must be ratified, and bind states against one another’.11 Harmonizing all states’ relevant laws in a broad and complex field such as securities may also be implausible, due to the difficulties in obtaining consensus on the substance of these laws. These difficulties have meant that in the area of financial regulation, regulators have formed a number of informal international regulatory bodies or networks.12 These informal networks of national regulators—referred to as transnational regulatory networks (or transgovernmental regulatory networks) (TRNs)—have captured the attention of scholars and practitioners.13 The agreements produced by regulators and TRNs have been characterized as a form of ‘soft international law’—as compared to hard law agreements, such as bilateral or multilateral treaties. Soft law is not codified in treaties or incorporated into domestic legislation. A key role of TRNs such as IOSCO is to promote harmonization and facilitate regulatory cooperation. IOSCO is responsible for developing, implementing and promoting adherence to internationally recognized standards for securities regulation.14 While there are potential challenges faced by TRNs in facilitating convergence or harmonization of laws and standards, there has been significant cooperation in relation to enforcement and investigations relating to securities. This is an area where cooperation between regulators has played an important role in assisting regulators execute their domestic mandates by effectively extending their reach beyond the regulators’ national boundaries.15 Much of this cooperation has occurred under the auspices of IOSCO. IOSCO, the international body that represents the world’s securities regulators, is one of the oldest and most established TRNs. IOSCO, which was established in 1983, has over 200 members from over 115 jurisdictions.16 Its membership regulates more than 95 per cent of the world’s securities markets.17 The first examples of formalized cross-border cooperation in relation to enforcement were bilateral MoUs.18 They gained greater prominence in the 1990s, largely under the aegis of IOSCO, which encouraged members to provide reciprocal assistance19 and enter bilateral agreements.20 IOSCO published general principles for the drafting of MoUs containing certain basic standards of cooperation, which eventually led to hundreds of bilateral and regional MoUs being concluded between IOSCO members.21 Many of these MoUs supplement the IOSCO MMoU (which is discussed below) to provide an agreement more tailored to the regulators’ specific legal requirements and the powers available domestically to the regulators. The US Securities and Exchange Commission (SEC), which was the key actor involved in the establishment of IOSCO,22 has been active in entering MoUs (including the earliest MoUs, which related to enforcement), since the 1980s.23 The SEC lists five categories of cooperative arrangements with foreign regulators on its website, which are (1) Enforcement Cooperation (25 MoUs); (2) Supervisory Cooperation (48 MoUs); (3) Technical assistance (9 MoUs), (4) Terms of Reference for Bilateral Dialogues (6 sets of terms of reference), and (5) Mutual Recognition (only one arrangement, with Australia).24 The SEC’s Office of International Affairs (OIA) receives and sends out hundreds of requests for assistance annually, primarily via its MoUs with other financial regulators.25 Cadmus examines the MoUs signed by the SEC and suggests that MoUs ‘hold the promise of successfully promoting cooperation’, and that they ‘embody the flexible and timely approach desirable in securities regulation’.26 It is suggested that the MoUs enhance the level of information-sharing with other regulators by providing an information-exchange framework, which is critical in addressing the difficulties involved in discovering and investigating transnational transgressions.27 MoUs, including those that relate to enforcement, are commonly signed between other financial regulators, including in the Asian region, which points to regulators’ belief in their usefulness and effectiveness in encouraging meaningful cooperation.28 For example, the Chinese securities regulator, the China Securities Regulatory Commission (CSRC), listed 51 agreements on its website as at the end of February 2012. The majority of these agreements relate to regulatory cooperation with other regulators.29 China’s securities regulator has even signed an agreement with Taiwan.30 India’s Securities and Exchange Board has also been active in signing MoUs. The Indian regulator, Securities and Exchange Board of India (SEBI), has currently signed 24 of these MoUs with other regulators.31 In Australia, ASIC has signed 98 bilateral agreements relating to various aspects of financial regulation.32 In New Zealand, the Financial Markets Authority lists 14 MoUs with securities regulators in other countries, as well as 25 MoUs in relation to the supervision of alternative investment fund managers with EU authorities. The authority also lists a number of MoUs with various other bodies based in New Zealand such as the Commerce Commission, Reserve Bank of New Zealand and the NZX Limited.33 It is generally considered that MoUs are effective tools in enhancing cooperation between regulators. Brummer observes that MoUs ‘enhance cooperation and promote information sharing, knowledge of other regulatory systems, and trust between regulators’.34 While MoUs are not legally enforceable, Brummer suggests that their ‘effectiveness relies on the premise that regulators presumably want to stay in good standing with their peers’, and that ‘reputation and the prospect of reciprocal noncompliance’ provide the primary form of incentivising cooperation.35 Thus, Brummer asserts that ‘regulators will comply with the terms of the agreement, as most (especially those of major markets) have a strong self-interest in promoting their own powers of cross-border enforcement’.36 Brummer observes that ‘[n]ot surprisingly, when receiving requests, regulators generally work hard to meet the expectations of counterparties under existing bilateral MOUs, and the agreements are frequently used as a basis for making requests and negotiating cross-border cooperation’.37 By comparison with efforts to achieve harmonized securities laws or standards, cooperation is more plausibly promoted by less formal arrangements, such as MoUs.38 Indeed, it has been suggested that even when regulators have entered into an MoU in part because it is not legally binding, the existence of an agreement can create a ‘surprisingly effective arrangement between diverse regulators’.39 Facilitating enforcement and investigations: IOSCO and the MMoU A key limitation of bilateral MoUs is that they do not constitute a broader framework in the area of financial regulation due to their limited reach.40 In order to extend this reach, IOSCO adopted the MMoU in 2002. The key events that triggered a new approach to cooperation were the terrorist attacks of 11 September 2001, and the concerns that financial markets had been used for terrorist financing.41 The MMoU was to a large extent modelled on the SEC’s enforcement MoUs, which had been in place since the 1980s.42 The MMoU, which IOSCO describes as the benchmark for international cooperation among securities regulators, was designed to facilitate the exchange of information among international securities regulators in the context of enforcement.43 IOSCO is not the only TRN looking to build on the reach of existing bilateral agreements by establishing multilateral agreements. For example, the Forum of European Securities Commissions (FESCO) established its own MMoU, the Multilateral Memorandum of Understanding on the Exchange of Information and Surveillance of Securities Activities in 1999 (the MMoU was recently updated in 2014).44 In 2007, the International Association of Insurance Supervisors (IAIS) established an MMoU, which is also aimed at providing a global framework for cooperation and information exchange.45 While IOSCO members are able to—and indeed are encouraged to—enter into bilateral arrangements, the IOSCO MMoU serves as a floor for minimum obligations of members.46 In providing a constructive framework for cooperation, the MMoU is likely to improve the effectiveness of global security market governance, providing global welfare gains.47 It has also been suggested that there are strong incentives for countries to sign the MMoU.48 There are at present 115 full signatories to the MMoU, and 14 more members have committed to seeking the legal authority necessary to enable them to become full signatories.49 Under the MMoU, securities regulators can provide information and assistance, including records, in relation to certain offences, to other signatories.50 IOSCO states that its top priority is ‘for its members to achieve the effective implementation of the IOSCO Principles and the MMoU, thereby facilitating cross-border cooperation, mitigating global systemic risk, protecting investors and ensuring fair and efficient securities markets’.51 It has been suggested that IOSCO has had ‘remarkable success’ in increasing securities enforcement cooperation among regulators—in part because ‘virtually all legal systems and cultures view fraud as reprehensible’.52 Enforcement cooperation is also an area in which only a minority of regulators of smaller markets, or possibly politically sensitive markets, face significant trade-offs.53 Verdier suggests that in the area of securities enforcement cooperation, once the mechanisms are established, ‘coordination is largely self-sustaining, which is why compliance with the IOSCO standards does not require dispute-resolution or enforcement mechanisms’.54 This certainly appears to be the case with the MMoU, which is increasingly being relied on by securities regulators—IOSCO reported that in 2015 there were 3,203 requests for information made under the MMoU, compared with only 56 in 2003.55 IOSCO is also looking to build on the success of past cooperative arrangements to ensure they continue to provide an effective framework for enforcement and investigation in a changing environment. To achieve this, IOSCO is now seeking to implement an enhanced standard for cross-border enforcement cooperation, the ‘Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and Exchange of Information’ (EMMoU). The EMMoU aims to build on the MMoU by providing regulators with additional enforcement powers that IOSCO considers are necessary due to the changes brought about by technology and market-based finance.56 IOSCO notes that while the MMoU will remain in effect for as long as any signatories continue to use it, IOSCO’s objective is for all MMoU signatories to eventually migrate to the EMMoU.57 From enforcement towards harmonization and enhanced supervision In this part of the article we have illustrated some of the ways in which regulators and regulatory networks have sought to facilitate cross-border cooperation via bilateral and multilateral agreements, including those relating to securities investigations and enforcement. The various forms of regulatory cooperation have played a role in promoting harmonization (through the publication of standards by TRNs such as IOSCO) and facilitating regulatory cooperation, particularly in the enforcement context. The IOSCO MMoU perhaps represents the apex of this trend and is already well-established and, indeed, recognized as a pre-requisite for certain purposes. For example, to become an active participant of the Asia Region Funds Passport initiative requires countries to be signatories to the MMoU.58 A number of members of IOSCO have also taken steps to restrict dealings with entities or individuals linked to jurisdictions that are not signatories to the MMoU.59 It has been suggested that soft law agreements (such as MoUs) can evolve into hard law (such as treaties) by moving norms into greater alignment.60 However, in practice, while agreements relating to enforcement have been effective in enhancing cooperation and facilitating mutual assistance between financial regulators, it has been suggested that they have generally had a more limited role in helping to shape the development of international rules or achieving substantially harmonized securities laws.61 In other words, while the MMoU and the existing MoUs have a useful role, these mechanisms have traditionally been used as an ex post tool aimed at facilitating regulatory cooperation relating to investigations and enforcement.62 These mechanisms may have had more limited success at achieving convergence (such as the harmonization of laws and standards).63 Austin suggests that IOSCO is able to achieve a degree of convergence in securities laws via the MMoU, or specifically via the relationship between the MMoU and IOSCO’s Objectives and Principles of Securities Regulation.64 These objectives and principles have been endorsed by both the G20 and the Financial Stability Board (FSB) as the relevant standards for securities regulation.65 They form the basis for the evaluation of the securities sector for the Financial Sector Assessment Programs (FSAPs) of the International Monetary Fund (IMF) and the World Bank. Before a country is able to participate in the MMoU, it is screened by IOSCO to ensure that it can comply with its provisions. This means that the country’s laws need to align with Principles 11–13 of the Objectives and Principles of Securities Regulation.66 For example, as observed by Austin, countries with secrecy laws that could prevent the collection or provision of information under the MMoU cannot become a signatory of the MMoU.67 Such a country could instead be listed under Appendix B to the MMoU, which would enable IOSCO to provide it with assistance to achieve the necessary legislative changes.68 The preceding example illustrates how the MMoU is used by IOSCO to drive incremental changes to domestic legislation and facilitate greater convergence with certain of IOSCO’s objectives and principles. Thus, Austin suggests that IOSCO members are more likely to accept increased convergence if there is an incentive in place, such as the ability to rely on the MMoU.69 It has also been observed that agreements between regulators have played a more limited role in enhancing cooperation outside of the enforcement context, for example by enhancing supervision to prevent misconduct from occurring in the first place (although proponents of these mechanisms may argue that this was never their objective). For example, it has been suggested that IOSCO has had only limited success in achieving enhanced supervision in relation to offshore financial centres.70 However, more recently IOSCO appears to have made progress in this area—Austin suggests that the MMoU had been used by IOSCO to help bring about changes in domestic laws in a number of countries, such as Switzerland, the Cayman Islands and the British Virgin Islands, all of which were previously known for their banking secrecy laws.71 A number of regulatory mechanisms aimed at facilitating cooperation in a supervisory context are outlined in IOSCO’s Final Report titled Principles Regarding Cross-Border Supervisory Cooperation.72 The IOSCO principles distinguish between ‘supervisory cooperation’ and ‘enforcement cooperation’, emphasizing the importance of ‘supervisory cooperation independent of an enforcement context’.73 The report sets out a number of ways in which supervisory cooperation can be achieved. For example, cooperation may be facilitated by ad hoc discussions or technical assistance provided by regulators. The idea of supervisory colleges has also drawn increasing interest from financial regulators. There is also scope for smaller networks of regulators, such as IOSCO’s various committees, to enhance cooperation. While an examination of these mechanisms is beyond the scope of this article, these mechanisms—if implemented effectively—may also play an important part in enhancing cooperation between regulators in this area. However, as observed by Dao, Godwin and Ramsay, the potential of all these mechanisms relies on the ability and willingness of regulators to use them proactively.74 Indeed, this limitation may reflect a broader difficulty of achieving effective cooperation by TRNs relating to those issues where national or regulatory preferences conflict,75 and also as a result of restrictions in domestic law such as confidentiality and information-sharing. 3. The emergence of Fintech and challenges to enhancing regulatory cooperation In this part of the article we examine the first steps taken by regulators to enhance cooperation in relation to Fintech through Fintech MoUs outline the parallels between the Fintech MoUs and the forms of regulatory cooperation discussed in Section 2, explore some of the key benefits of enhanced cooperation between regulators in this area, and briefly identify some possible future developments aimed at achieving effective cooperation in the area of Fintech regulation. Fintech MoUs While the Fintech sector has attracted significant investment76 and widespread attention of industry, governments,77 regulators and the media only in recent years, the term ‘Fintech’ can be traced back to the early 1990s.78 The provision of financial services via the use of technology can be traced much further back.79 The rise in Fintech has accelerated rapidly since the GFC.80 At a domestic level, several regulators have recently implemented a number of important initiatives aimed at supporting Fintech businesses. Two of the key initiatives are regulatory sandboxes and regulatory innovation hubs. Regulatory sandboxes involve the grant of licensing exemptions and conditional relief from regulatory requirements to allow Fintech businesses to test their concepts in a controlled environment established by the regulator in consultation with the business. Staff at innovation hubs have the role of providing direct support for, and engaging with, Fintech businesses, particularly in relation to navigating the regulatory requirements.81 Generally, to obtain support through the innovation hub the business needs to satisfy several eligibility criteria.82 By engaging constructively with the Fintech industry through their innovation hubs and sandboxes, regulators are able to be more adaptive, and avoid regulatory inertia by learning about emerging financial technologies and adapting their future regulatory processes. This in turn can help ensure that lawmaking and regulatory design is more proactive, dynamic and responsive.83 In an environment of rapid expansion in Fintech it is also important for financial regulators to effectively coordinate with their peers in other countries. A basic reason for this is that in an era of globalized markets and increased connectivity via the internet, many innovative start-ups will seek to operate in more than one country—or even globally. As noted by ASIC Chairman Greg Medcraft, ‘… because the internet knows no borders, cooperation between jurisdictions is critical to our markets and economies reaping the benefits and opportunities both Fintech and Regtech offer’.84 While regulators’ innovation hubs are aimed at assisting businesses to navigate their respective national regulatory systems, complexity may increase significantly for start-ups seeking to operate in multiple jurisdictions. These start-ups must navigate multiple sets of financial regulation, which increases the level of regulatory uncertainty and time-to-market.85 By scaling up and expanding internationally, Fintech start-ups can potentially become more sustainable challengers to incumbent players in traditional markets. This is an area where regulators can also play a key role, by connecting start-ups with other international regulators, easing the burden on these businesses. A number of regulators have taken the first steps to enhance regulatory cooperation relating to Fintech. In most cases, this has involved the signing of MoUs, with other countries’ financial regulators that have their own innovation functions. Fintech MoUs are a very recent phenomenon—the first one was signed by ASIC and the FCA in March 2016.86 A number of Fintech MoUs have since been signed by regulators including the FCA, ASIC, the Monetary Authority of Singapore (MAS), the Hong Kong Monetary Authority (HKMA), the Hong Kong Securities and Futures Commission (SFC), and the Ontario Securities Commission (OSC).87 MAS has also recently signed a number of agreements relating to Fintech.88 Both ASIC and the FCA and have undertaken formal exchanges of letters with the Financial Services Agency of the Government of Japan that set out arrangements that are broadly consistent with the other cooperation agreements.89 The primary purpose of Fintech MoUs is to provide a framework for cooperation and referrals between the ‘innovation functions’ (ie innovation hubs) of each authority.90 Broadly, the agreements establish a referral mechanism that enables the authorities to refer ‘innovator businesses’ between their respective innovation functions, and set out how the authorities plan to share and use information on innovation in their respective markets.91 For example, to seek an international referral from ASIC, a business is required to submit an ‘international referral request’ form to ASIC’s innovation hub, providing information about the business, information about the innovation and business model, and explaining how the innovation meets the eligibility criteria for referral.92 The agreements also set out some of the ways in which regulators will provide support to businesses referred to them under the agreements. Support provided includes the provision of a dedicated team and/or a dedicated contact for each business, as well as assistance for businesses in understanding the regulatory framework and how it applies to them.93 Assistance is provided prior to the business submitting an authorization, during the authorization process, and after the business is authorized.94 Under some agreements regulators agree to share information—including on emerging market trends and regulatory issues arising from the growth in innovation—in order to promote innovation in financial services in their respective markets.95 For example, such agreements have been signed by ASIC with Kenya’s Capital Markets Authority and with the Indonesian financial regulator, Otoritas Jasa Keuangan (OJK) and by the FCA with the Republic of Korea’s financial services regulator and with the People’s Bank of China (PBOC). Typically, Fintech MoUs contain the following content: Definitions: The relevant terms, such as the ‘criteria for support’, ‘innovator business’, ‘referring authority’ (the authority that is referring an innovator business under the MoU) and ‘receiving authority’ (the authority that is receiving an innovator business referral or information under the MoU) are defined. Introduction: The provisions in this section outline the mutual desire of the authorities to promote innovation and introduce the authorities’ respective innovator functions or hubs. The provisions also outline the support that the respective innovation hubs/functions offer to innovator businesses (if applicable). Purpose: This provision outlines the purpose of the MoU, which is to provide a referral mechanism that governs cooperation and referrals between each authority’s innovation hub/function. Principles: The purpose of this section is to note that the authorities intend to provide the fullest possible mutual assistance to one another under the MoU while being subject to domestic laws and regulations in each jurisdiction. The provision clarifies that the MoU is a ‘statement of intent’ and does not create any enforceable rights, and is not legally binding. Scope of Cooperation: This section outlines the scope of cooperation. The current MoUs typically include an outline of the referral mechanism (if one exists), and provisions outlining the sharing of information. Confidentiality and Permissible Uses: These are confidentiality provisions surrounding the use of the information provided under the MoU. Term: This section sets out that the MoU takes effect from the date of the execution and will continue to have effect until terminated by either of the parties (which are required to provide at least 30 days’ written notice to terminate the agreement). Amendment: This section notes that the MoU may be amended if both authorities agree in writing. There has been a high degree of standardization in the agreements entered into so far, although there are some variations in drafting. We examined some of the first agreements implemented to identify the more significant differences, which are summarized below. The ASIC–OSC and ASIC–MAS agreements have a requirement that the criteria for support for businesses wishing to operate in the authority’s jurisdiction should include that the businesses: offer innovative financial products or services that benefit the consumer, investor and/or industry; and have conducted sufficient background research on the regulations that might apply to them. The FCA–ASIC agreement does not include such a requirement. However, the innovation functions of both ASIC and the FCA have such requirements in their respective eligibility criteria which means that this omission from the MoU is likely to be largely immaterial.96 An additional requirement in the ASIC–OSC agreement (which is not present in ASIC’s other agreements) is that the criteria for support should include that the business is a start-up or an authorized financial services provider in its first year of operation since obtaining its authorization. The FCA–ASIC agreement does not provide any such specific requirement, which means that the agreement would also apply to established businesses. This difference may be due to the design of the OSC’s innovation hub, which is aimed at new or early-stage Fintech start-ups that have not commenced operations or are in the process of applying to the OSC for registration or exemptive relief (compared with the FCA’s innovation hub, which is not explicitly restricted to start-ups or new businesses).97 The ASIC–MAS agreement includes an additional provision that is not included in the other agreements relating to potential joint innovation projects between the regulators: ‘The Authorities undertake to consider participating in joint innovation projects on the application of key technologies such as digital and mobile payments, blockchain and distributed ledgers, big data, flexible platforms (API), and other areas of new technologies’.98 The ASIC–OSC agreement leaves it open for other Canadian authorities and regulators to become party to the agreement.99 Comparison with other forms of regulatory cooperation An examination of the structure and the drafting of the agreements reveals significant parallels between these new agreements and the MoUs relating to securities investigations and enforcement discussed in Section 2 of this article, both in the structure of these agreements and their purpose, which is to establish a process for cooperation and assistance. While the subject matter between the two classes of MoUs is different, and it may be that the scope of assistance provided under Fintech MoUs will be more limited, it is apparent from the drafting that Fintech MoUs are modelled on the MMoU and the early bilateral agreements. While the earlier bilateral MoUs were aimed at establishing a process under which regulators could request and provide assistance relating to enforcement and investigations, Fintech MoUs aim to enhance cooperation by entrenching a process under which regulators can support innovative businesses. The earlier MoUs and the MMoU established an arrangement under which the ‘requested authority’ provides assistance to the ‘requesting authority’, while under the Fintech MoUs the mechanism involves the ‘receiving authority’ providing assistance to the innovative business being referred to it by the ‘referring authority’. Table 1 illustrates the similarities between the structure of two typical agreements: the enforcement MoU and the Fintech MoU between ASIC and MAS. Table 1 Comparison between traditional enforcement MoUs and Fintech MoUs Purpose of section of MoU  2000 Bilateral MoU between MAS and ASIC  2016 Fintech MoU between MAS and ASIC  Introduction  Article 1  Article 2  Purpose and Principles  Article 2  Articles 3 and 4*  Definitions  Article 3  Article 1  Referrals/Assistance Mechanism  Article 4 (Scope of Assistance)  Article 5 (clause 5.1–5.5)†  Article 5 (Unsolicited Information)  Article 6 (Requests for Assistance)  Article 7 (Execution of Requests)  Permissible Use of Information and Confidentiality of Requests  Articles 8 and 9  Article 6  Consultations  Article 10  Article 5 (clause 5.7–5.9)†  Amendments, Publication and Termination  Article 11 (Amendments to MoU)  Article 8 (Amendment)  Article 12 (Publication of MoU)  N/A  Article 13 (Termination of MoU)  Article 7 (Term)  Appendix: Contacts  Appendix 1  Appendix A  Purpose of section of MoU  2000 Bilateral MoU between MAS and ASIC  2016 Fintech MoU between MAS and ASIC  Introduction  Article 1  Article 2  Purpose and Principles  Article 2  Articles 3 and 4*  Definitions  Article 3  Article 1  Referrals/Assistance Mechanism  Article 4 (Scope of Assistance)  Article 5 (clause 5.1–5.5)†  Article 5 (Unsolicited Information)  Article 6 (Requests for Assistance)  Article 7 (Execution of Requests)  Permissible Use of Information and Confidentiality of Requests  Articles 8 and 9  Article 6  Consultations  Article 10  Article 5 (clause 5.7–5.9)†  Amendments, Publication and Termination  Article 11 (Amendments to MoU)  Article 8 (Amendment)  Article 12 (Publication of MoU)  N/A  Article 13 (Termination of MoU)  Article 7 (Term)  Appendix: Contacts  Appendix 1  Appendix A  Notes: * The Fintech MoU between ASIC and MAS has a separate section that is titled ‘Principles’, which does not appear in the ASIC-MAS 2000 MoU. However, the substantive part of this section is replicated in other sections of the earlier MoU. For example, the intent of ‘provid[ing] each other with the fullest mutual assistance’ is in Article 4 (scope of assistance); the agreement for the arrangement to be subject to domestic laws and regulations is in clause 2.4. The Principles section in the Fintech MoU also notes that it does not affect the arrangements under a more recent (2014) agreement, which relates to derivatives contracts held in trade repositories. † Article 5 of the Fintech MoU is the main operative part of the MoU, setting out the referral mechanism for the authorities’ innovative functions (clause 5.1–5.5), the potential for joint innovation projects (clause 5.6), and information sharing in relation to innovator businesses and other issues relating to innovations in financial services (5.7–5.9). Article 10 of the 2000 MoU, titled ‘consultations’, covers consultation between authorities on matters including the operation of the MoU and laws and regulations affecting the scope of the MoU. In another sense, however, Fintech MoUs are distinctive at this stage of their development. Fintech MoUs represent a new form of regulatory cooperation that contains elements of both the earlier enforcement MoUs discussed in Section 2, as well as mutual recognition MoUs. Mutual recognition MoUs involve the regulator in one jurisdiction recognizing the determination of a regulator in another jurisdiction for agreed purposes. The element of mutual recognition which is implicit in Fintech MoUs is that they require that referrals ‘will include information demonstrating that the Innovator Business … meets, or would meet, the Referring Authority's Criteria for Support’.100 The provision of this information by the referring authority will entitle the innovator business to obtain support by the receiving authority. While the provision of assistance by the receiving authority does not guarantee authorization will subsequently be provided—indeed, the Fintech MoUs state this explicitly—the mutual recognition aspect of Fintech MoUs is that it is sufficient for a business to meet the referring authority’s criteria for support to obtain support of the receiving authority, even where there are differences between the two sets of criteria. Fintech MoUs are only the first step by domestic regulators seeking to enhance cooperation in relation to Fintech. At this stage it is too early to tell whether Fintech MoUs are working effectively because little information is publicly available on the extent to which they are being used by businesses. For example, ASIC has so far noted only that it has made its first referral to the FCA and that it is in the process of making its first referral to MAS.101 Another challenge in evaluating the effectiveness of these arrangements arises due to the confidentiality provisions surrounding MoUs. Under these provisions regulators will generally not release the information provided under the MoUs except under very specific circumstances. This constraint has been observed in relation to the enforcement MoUs.102 Fintech MoUs incorporate essentially the same confidentiality provisions.103 Potential of Fintech MoUs to enhance regulatory cooperation As discussed in the previous section, to assist Fintech businesses navigate multiple regulatory regimes, regulators have signed bilateral Fintech MoUs with other countries’ regulators that have their own innovation functions. Given the significant utilization of innovation hubs, and the borderless aspects of globalized finance, it is likely that Fintech businesses could benefit by relying on support provided by regulators through Fintech MoUs. Benefits of Fintech MoUs may also flow to regulators. Proactive use of Fintech MoUs would help participating regulators learn about innovative and regulatory developments that are occurring in the region, and globally. This is important in an increasingly complex global regulatory environment. However, similar to the bilateral enforcement MoUs, the usefulness of Fintech MoUs as a mechanism to foster cooperation—at least for now, when these agreements are only beginning to proliferate—is limited by their reach. The extent to which Fintech MoUs will be used by Fintech businesses seeking support in accessing international markets will likely depend on the number of countries that have bilateral agreements with each other. For a Fintech business seeking support in multiple countries the benefits of relying on support via Fintech MoUs increases as the number of connected regulators increases—the alternative involves having to approach each regulator directly. Similarly, the benefits for regulators gained through information-sharing via Fintech MoUs are likely to become more significant as more countries enter such agreements. As it stands, the existence of these agreements is unlikely to entirely address the complexity faced by Fintech businesses seeking to access multiple domestic markets. Complexities will also arise due to the differences in countries’ laws and regulatory approaches. For example, a number of jurisdictions require a business to satisfy certain eligibility criteria to obtain support from their innovation hub. Even if a business qualifies to obtain support from the innovation hub after being referred by its home regulator, it may be unable to obtain a license to operate because of different (eg more stringent) criteria that apply to licenses in the other country.104 There are also broader challenges in achieving effective regulatory cooperation. While the level of disruption occurring as part of the current wave of Fintech is unprecedented, many of the broader regulatory challenges are not new. The principal obstacle for effective cooperation relates not to the mechanisms available to the regulators but in their ability and willingness to proactively use these mechanisms.105 Whether proactive use occurs may depend on a number of factors. For example, it may be a challenge to achieve cooperation when the relevant national preferences—or perceived national preferences—conflict.106 Other challenges include legal obstacles, a reluctance by regulators to relinquish their responsibilities or control to another regulator (or network), or simply a lack of resources.107 In respect of Fintech, there may be a tension between countries’ national preferences because they compete to attract Fintech businesses and entrepreneurs, which reduces the potential for effective cooperation between regulators. However, effective cooperation between regulators could also deliver significant benefits for both regulators and Fintech start-ups, particularly because it would allow the latter to become more sustainable by providing their innovative offerings in a number of jurisdictions without having to navigate different regulatory requirements in each country. Effective cooperation would also help regulators ensure that lawmaking and regulatory design is more proactive, dynamic and responsive. Possible future developments aimed at achieving effective cooperation While a high degree of standardization has already been achieved between the early Fintech MoUs, ultimately, they represent only the initial steps towards achieving regulatory cooperation in this area. Their value will be enhanced if they can evolve into a more extensive system (similarly to the way that the early bilateral enforcement MoUs evolved into a wide-reaching MMoU, as discussed in Section 2), and if they contribute to a general trend towards harmonization or convergence in the domestic regulation of Fintech. While regulators and regulatory networks are still grappling with the challenges posed by Fintech, and regulatory responses to Fintech are still in their inception, there are some encouraging signs of greater regulatory cooperation. Regulators, industry participants and others are aware of the benefits and opportunities that enhanced cooperation in relation to Fintech has to offer.108 The rise of Fintech has prompted IOSCO to release a recent report on Fintech,109 which suggests that the organization is also aware of the potential challenges arising from the global nature of Fintech and the potential role that can be played by increased cooperation and exchange of information between regulators.110 The report outlines a number of Fintech developments, trends in emerging markets, and specific regulatory challenges relating to the various emerging technologies.111 The report also acknowledges the broader challenges for regulators—such as increased regulatory complexity and the implications of Fintech for the regulatory perimeter.112 In terms of regulatory cooperation, IOSCO observes in its report that financial regulators have engaged in multilateral collaboration ‘to a greater degree’ on digital innovation via IOSCO, BIS, the Committee on Payments and Market Infrastructures (CPMI) and the FSB.113 These other TRNs have also been monitoring the rise of Fintech, and have also called for increased international cooperation. For example, the Basel Committee has suggested that increased international cooperation may be beneficial for all parties and has called for greater international regulatory coordination and cooperation, particularly in relation to the regulatory treatment of cross-border Fintech companies.114 The FSB has also noted that Fintech has the potential to both support and undermine financial stability.115 The FSB, observing the need for agencies to discuss cross-border issues surrounding Fintech, and the benefits given the commonalities and global dimension of many Fintech activities, has identified 10 specific issues that it considers merit authorities’ attention, including three it considers to be priorities for international cooperation.116 IOSCO’s proposed EMMoU illustrates that it is looking to build on the success of past cooperative arrangements to ensure they are effective in the current environment, which is characterized by disruptive technology and market-based finance.117 Austin suggests that IOSCO has previously been able to use the MMoU as a ‘carrot’ to incentivize its members to bring their domestic laws in line with some of its principles.118 Austin suggests that ‘given its goals and the success of the MMoU for standardizing some aspects of securities regulation, IOSCO is unlikely to forget the lessons it has learnt’, and that it is likely that IOSCO will continue to use these lessons to develop systems that work towards convergence of securities regulation.119 One way of encouraging convergence of domestic securities laws relating to Fintech would be for IOSCO to require countries to ensure that their domestic laws are consistent with certain principles, which may include principles relating to Fintech, in order to sign up to the new EMMoU (or an MMoU that specifically relates to Fintech if one is established by IOSCO). While such an approach may bring about some level of convergence in domestic laws relating to Fintech, IOSCO’s modest record in achieving convergence suggests that such incremental changes may not be enough to address the challenges posed by Fintech to traditional regulatory approaches. We noted earlier that regulatory cooperation in the area of financial regulation is particularly important because it assists domestic regulators address territorial concerns that arise in an increasingly complex globalized financial economy.120 The events of the GFC shone a spotlight on what has been described as major failures in financial regulatory and supervisory frameworks, highlighting the importance of cross-border regulatory cooperation to address the regulatory gaps.121 The rapid rise and increasing prominence of Fintech businesses in the last few years provide both opportunities and challenges to domestic regulators and TRNs. In particular, the rise of Fintech may test regulators’ ability to operate effectively in an increasingly globalized environment. To be able to perform their function effectively in an environment of increased risk due to technological and legal complexity and an expanding regulatory perimeter requires effective cooperation among regulators at an international level.122 As noted by Chiu: The relocation of financial intermediation processes into the virtual sphere raises implications in terms of globalisation and the reach of territorial regulation, cyber-risks, confidentiality, and shifts in the relational dimensions of the intermediary–client relationship. There is a need for regulators to coordinate with each other at the international level in terms of standard-setting as well as global surveillance, information sharing and enforcement assistance.123 A number of regulators and networks, including IOSCO and the European Commission (EC), are considering ambitious initiatives aimed at enhancing regulatory cooperation in relation to Fintech. ASIC Chairman and former IOSCO Chair Greg Medcraft has suggested that the benefits of Fintech MoUs would be enhanced if they were to evolve into a regional or even global multilateral agreement (eg an agreement similar to the MMoU).124 A multilateral agreement that sets in place appropriate mechanisms for Fintech businesses seeking support in multiple participating countries is likely to significantly reduce the costs for start-ups seeking to scale-up internationally. In particular, it is likely to reduce the costs of navigating multiple sets of laws and regulations in each country. The EC has created a Fintech taskforce, which aims to assess technological developments and business models to determine whether current rules and policies are fit for purpose.125 The taskforce will also consider whether new licensing/passporting regimes are needed.126 In its most recent consultation document on Fintech policy, the EC has noted that ‘it is committed to ensuring that any unjustified legal and practical barriers to setting up and scaling up Fintech services across the Single Market are removed, whilst protecting consumers and monitoring the potential impact on financial stability’.127 One of the options the EC has suggested is introducing basic principles for firm support at EU level, which could ‘eventually lead to an automatic referral system between [innovation] hubs’.128 It is also possible that cross-border regulatory cooperation will occur in the Asian region. One recent multilateral agreement in the region is the Asia Region Funds Passport Memorandum of Cooperation, signed by Australia, Japan, Korea and New Zealand, which aims to provide a multilaterally agreed framework for passporting arrangements to facilitate the cross-border offering of high quality managed funds across participating economies in the Asian region.129 Passporting arrangements have similar objectives to mutual recognition, but operate in a different manner—broadly, under passporting arrangements countries agree on a common set of rules and a single process for registration, while under mutual recognition arrangements, one regulator provides relief to a person or a business from certain regulatory requirements by relying on the other regulator for supervisory oversight.130 A number of benefits are expected to flow from these passporting arrangements to investors, the Asia region fund management industry and the broader state of financial markets in the region.131 The aim is for the Asia Region Funds Passport to be implemented by the end of 2017.132 Greg Medcraft, noting the benefits of the harmonization of regulatory responses and approaches, has suggested that ‘it is possible that we may settle on something close to a “Fintech passport”, easing entry for Fintech developments in each other’s jurisdictions’.133 Recently, MAS signed a memorandum of cooperation with the International Finance Corporation, a member of the World Bank Group, to establish the ASEAN Financial Network (AFIN) with the aim of facilitating broader adoption of Fintech innovation and enhancing economic integration within the region.134 The possibility of harmonized and proportionate regulatory and supervisory requirements for Fintech activities, including passporting within the EU Single Market, has also been floated by the EC.135 Another possible innovative initiative aimed at enhancing cooperation between regulators would be a cross-border regulatory sandbox. Regulatory sandboxes, established by regulators to allow Fintech businesses to test their concepts, represent another key regulatory response to the rise of Fintech. Sandboxes provide an example of regulators looking to shift away from traditional regulatory approaches and to embrace principles of proactive, dynamic and responsive regulation, even though, similarly to Fintech MoUs, the sandboxes are only mechanisms and it is too early to tell whether they will achieve the desired objectives in practice. In any event, the establishment of sandboxes is encouraging from the point of view of Fintech businesses and consumers, because of the potential that they will promote competition and innovation. The sandbox regime also provides an opportunity for regulators to become more engaged in the oversight of new financial technologies by assisting regulators to familiarize themselves with new technological innovations, and monitor their take-up. This assists regulators to ensure that financial regulations remain appropriate in an environment of rapidly-changing technologies, while minimizing the diversion of resources and wasted efforts to understand every new technological innovation.136 These benefits will be enhanced if sandboxes also operate across borders. For example, Fintech businesses will be able to more efficiently test the viability of their concepts in multiple jurisdictions. This is because the burden on these businesses would be lower than if they were required to comply with different laws and sandbox mechanisms in testing their innovative concepts. The possibility of a cross-border regulatory sandbox has already been floated for the EU—however, while this proposal was favoured by most industry respondents, it was opposed by most public authorities.137 The Canadian Securities Administrators (CSA), the umbrella organization of Canada’s provincial and territorial financial regulators, launched a regulatory sandbox initiative in February 2017.138 The CSA notes that its sandbox ‘is open to business models that are truly innovative from a Canadian market perspective’.139 There is currently little detail available on how the sandbox will operate but it appears likely that the CSA sandbox will operate together with the ‘innovation hubs’ and tech staff employed by the securities regulators in the respective Canadian provinces and territories.140 A business will be required at first instance to contact its local securities regulator, which can refer the business to the CSA regulatory sandbox, which can then allow testing of the concepts throughout the Canadian market.141 Because it will span multiple provinces, territories and regulators, the CSA experience may provide an example of how a cross-border regulatory sandbox could operate. The recently-established AFIN is also evaluating options for an industry sandbox, which will comprise ‘a cloud-based marketplace for distribution of FinTech solutions to financial institutions located in multiple jurisdictions’.142 There may also be lessons from these initiatives that can be applied to a Fintech MMoU. We noted earlier that the ASIC–OSC Fintech MoU is drafted in a way to allow other Canadian authorities, such as its provincial and territorial financial regulators, to become party to the agreement. This may indicate that there is already an appetite among some regulators to use the initial agreements as a springboard to establish more enhanced forms of cooperation, such as a multilateral agreement. All of these initial developments are encouraging signs that governments, regulators and TRNs are actively looking at new ways of enhancing regulatory cooperation in relation to Fintech. These developments come at a time when regulators are under increasing scrutiny in the aftermath of the GFC.143 The significance of the challenges posed by the disruptive nature of Fintech may provide a strong impetus for legislators, regulators and TRNs to embrace more ambitious models of regulatory cooperation, which has historically proved difficult to achieve in practice outside the enforcement sphere. Indeed, if enhanced cooperation does eventuate, it would provide an example for other areas of financial regulation. 4. Conclusion The recent trend of regulators establishing bilateral agreements, or Fintech MoUs, suggests that regulators are looking to build on the success of past cooperative arrangements—such as bilateral MoUs relating to investigation and enforcement and the MMoU. These new bilateral agreements set up an initial framework that will connect Fintech businesses to regulators’ innovation hubs in other countries. This kind of direct support is likely to have a significant practical benefit for innovative businesses seeking to operate across borders. However, Fintech MoUs are only the first step in achieving enhanced regulatory cooperation, and there are significant benefits for both regulators and Fintech businesses in further enhancing cooperation in this area. This could be achieved, for example, by the establishment of a multilateral agreement relating to Fintech. The increased proliferation of these agreements, together with the increased focus on—and potential benefits of—greater cooperation between regulators in relation to Fintech raises the prospects of a multilateral agreement or the harmonization of international standards in the future. While there are broader regulatory challenges to achieving effective regulatory cooperation, effective cooperation between regulators in this area could deliver significant benefits. By examining the transition from the early bilateral MoUs entered into by securities regulators in the 1980s and 1990s to the IOSCO MMoU (which may in turn evolve into the EMMoU), and the early developments in relation to Fintech, we have illustrated that cooperation in relation to the latter appears to be following a similar trajectory to the former. When seen through this lens, the initial bilateral Fintech MoUs are analogous to these first bilateral MoUs, which subsequently evolved into an effective cross-border securities enforcement framework. We observed that a high degree of standardization has already been achieved between the first Fintech MoUs, and there have already been discussions among regulators in relation to mutual recognition arrangements such as a Fintech MMoU or Fintech passport. Accordingly, Fintech MoUs present significant potential to result in more developed forms of regulatory cooperation. Footnotes 1 Adrian Fisher, ‘Fintech: The Next Wave of Disruption’ (FinanceAsia, September 2015), <www.financeasia.com/News/401363,fintech-the-next-wave-of-disruption.aspx> accessed 27 May 2017. 2 See Iris H-Y Chiu, ‘The Disruptive Implications of Fintech—Policy Themes for Financial Regulators’ (2017) 21 Journal of Technology Law & Policy 56, 62 (noting that financial innovation often involves more credit creation, which could create systemic risk, and additional complexity, making systems and markets more susceptible to systemic effects). See also Financial Services Authority (FSA), ‘The Turner Review: A Regulatory Response to the Global Banking Crisis’ (March 2009) 14, 47–49 <www.fsa.gov.uk/pubs/other/turner_review.pdf> accessed 27 May 2017 (discussing the role of financial market innovation—in the form of origination, packaging, trading and distribution of securitized credit instruments—in changing the nature of the securitized credit model, the growth and complexity of which contributed to the Global Financial Crisis). 3 Chiu ibid. 4 Chris Brummer, ‘Disruptive Technology and Securities Regulation’ (2015) 84 Fordham Law Review 977, 1037 (discussing the new objectives faced by regulators following the GFC); Chiu (n 2) 68 (discussing the reasons for the new regulatory objectives). 5 Accenture’s Fintech report found that Fintech investment in the Asia-Pacific region more than quadrupled in 2015 to $4.3 billion: see Accenture, ‘Fintech and the Evolving Landscape: Landing Points for the Industry’ (2016) <www.fintechinnovationlablondon.co.uk/pdf/Fintech_Evolving_Landscape_2016.pdf> accessed 27 May 2017. 6 Douglas Arner, Jànos Barberis and Ross P Buckley, ‘The Evolution of Fintech: A New Post-Crisis Paradigm’ (2016) 47 Georgetown Journal of International Law 1271, 1273–74 (discussing Fintech limitations and opportunities in the Asian-Pacific region). Arner et al note the following factors driving the developments of Fintech in Asia: ‘(1) young digitally savvy populations equipped with mobile devices; (2) a fast-growing middle class with 60% of the world's middle class to be located in Asia by 2030; (3) inefficient financial and capital markets creating opportunities for informal alternatives; (4) shortage of physical banking infrastructure; (5) behavioural pre-disposition in favour of convenience over trust; (6) untapped market opportunities (1.2 billion people without bank accounts); and (7) less stringent data protection and competition’ (1299). 7 Chiu (n 2) 82, 92. 8 ‘IOSCO Research Report on Financial Technologies (Fintech)’ (February 2017) <https://www.iosco.org/library/pubdocs/pdf/IOSCOPD554.pdf> accessed 29 May 2017. The Basel Committee and the Financial Stability Board (FSB) have also released reports encouraging closer regulatory cooperation in relation to Fintech: see nn 108–116 and corresponding text. 9 David Zaring, ‘Finding Legal Principle in Global Financial Regulation’ (2012) 52 Virginia Journal of International Law 683, 689. 10 Pierre-Hugues Verdier, ‘Transnational Regulatory Networks and their Limits’ (2009) 34 Yale Journal of International Law 113, 114. 11 Zaring, (n 9) 690 (citing Jeffrey L Dunoff and Joel P Trachtman, ‘Economic Analysis of International Law’ (1999) 24 Yale Journal of International Law 1, 35). 12 In the area of financial regulation, these networks include IOSCO, the Basel Committee on Banking Supervision (Basel Committee), the International Association of Insurance Supervisors (IAIS), the Financial Action Task Force, the Financial Stability Forum, the International Accounting Standards Board and the World Federation of Exchanges. These networks have also appeared in a range of other areas, such as transportation, antitrust, and consumer protection: see David Zaring, ‘Three Challenges for Regulatory Networks’ 43(1) 2009 International Lawyer 211, 211–12. 13 In the early years of network analysis, scholars were impressed with the potential of these networks as a tool of international governance: see, for example, Anne-Marie Slaughter, A New World Order (2004); David Zaring, ‘International Law by Other Means: the Twilight Existence of International Financial Regulatory Organizations’ (1998) 33 Texas International Law Journal 281; Kal Raustiala, ‘The Architecture of International Cooperation: Transgovernmental Networks and the Future of International Law’ (2002) 43 Virginia Journal of International Law 1. Since 2010, as observed by Robert B Ahdieh, the focus on TRNs has been in decline, in part due to the impact of the GFC—because TRNs played only a marginal role in either preventing or responding to the crisis: see Robert B Ahdieh, ‘Coordination and Conflict: The Persistent Relevance of Networks in International Financial Regulation’ (2015) 78 Law and Contemporary Problems 75, 76. See also David Zaring, ‘International Institutional Performance in Crisis’ (2010) 10 Chicago Journal of International Law 475, 478–86; Eric J Pan, ‘Challenge of International Cooperation and Institutional Design in Financial Supervision: Beyond Transgovernmental Networks’ (2010) 11(1) Chicago Journal of International Law 243. Indeed, it has been suggested that the Basel Accords exacerbated the impact of the GFC because they provided national banking regulators the leeway to exempt securitization from global regulation, introducing a ‘regulatory race to the bottom’: see Matthias Thiemann, ‘In the Shadow of Basel: How Competitive Politics Bred the Crisis’ (2014) 21 Review of International Political Economy 1203. TRNs—their successes, failures, potentials and limitations—have been examined extensively by scholars elsewhere, and a detailed examination of these is beyond the scope of our article. 14 ‘About IOSCO’ <www.iosco.org/about/?subsection=about_iosco> accessed 27 May 2017. 15 Chris Brummer, ‘How International Financial Law Works (and How it Doesn’t)’ (2011) 99 Georgetown Law Journal 257, 300; Michael Mann, Paul Leder and Elizabeth Jacobs, ‘The Establishment of International Mechanisms for Enforcing Provisional Orders and Final Judgments arising from Securities Law Violations’ (1992) 55 Law & Contemporary Problems 303. 16 IOSCO, ‘Fact Sheet’ (May 2017) <www.iosco.org/about/pdf/IOSCO-Fact-Sheet.pdf> accessed 6 October 2017. IOSCO was initially established as a cooperative body by securities regulators from North and South America. 17 ibid. 18 Brummer, ‘How International Financial Law Works’ (n 15) 302. 19 IOSCO, ‘A Resolution Concerning Mutual Assistance (“Rio Declaration”)’ (November 1986) <www.iosco.org/library/resolutions/pdf/IOSCORES1.pdf> accessed 27 May 2017. 20 IOSCO Technical Committee, ‘Principles for Memoranda of Understanding’ (September 1991) <www.iosco.org/library/pubdocs/pdf/IOSCOPD17.pdf> accessed 27 May 2017. 21 Verdier (n 10) 144. 22 Pierre-Hugues Verdier, ‘Political Economy of International Financial Regulation’ (2013) 88 Indiana Law Journal 1405, 1434. 23 Chris Brummer, ‘Post-American Securities Regulation’ (2010) 98(2) California Law Review, 327, 337. 24 SEC, ‘Cooperative Arrangements with Foreign Regulators’ <www.sec.gov/about/offices/oia/oia_cooparrangements.shtml/> accessed 6 October 2017. 25 Eduard H Cadmus, ‘Revisiting the SEC’s Memoranda of Understanding: a Fresh Look’ (2011) 33 Fordham International Law Journal 1800, 1839–40. 26 ibid 1858. 27 ibid 1803, 1853. 28 ibid 1851–52. 29 CSRC, ‘List of MoUs Signed between CSRC and Overseas Authorities (as of the end of February 2012)’, <www.csrc.gov.cn/pub/csrc_en/affairs/Cooperation/201203/t20120315_207208.html> accessed 6 October 2017. The CSRC’s website also lists eight more recent MoUs: see CSRC, ‘Regulatory Cooperation’ <www.csrc.gov.cn/pub/csrc_en/affairs/Cooperation/> accessed 6 October 2017. 30 ‘Taiwan, China Seal Financial MOU’ China Post (17 November 2009) <www.chinapost.com.tw/taiwan/china-taiwan-relations/2009/11/17/233003/Taiwan-China.htm> accessed 28 May 2017. 31 SEBI, ‘Bilateral MoUs’ <www.sebi.gov.in/cms/sebi_data/internationalAffr/IA_BilMoU.html> accessed 6 October 2017. SEBI has also signed MoUs relating to Alternative Investment Fund Managers (AIFM): see SEBI, ‘List of 27 Securities Markets Regulators’ <www.sebi.gov.in/cms/sebi_data/internationalAffr/IA_BilMoU_List.html> accessed 6 October 2017. 32 ASIC, ‘Memoranda of Understanding and Other Agreements’ <asic.gov.au/about-asic/what-we-do/international-activities/international-regulatory-and-enforcement-cooperation/memoranda-of-understanding-and-other-international-agreements/> accessed 6 October 2017. 33 Financial Markets Authority, ‘MoUs with other Financial Regulators and Agencies’ <www.fma.govt.nz/fmas-role/what-we-do/how-we-regulate/regulatory-co-operation/mous-with-other-financial-regulators-and-agencies/> accessed 6 October 2017. 34 Brummer, ‘Post-American Securities Regulation’ (n 23) 338. 35 ibid; Brummer, ‘How International Financial Law Works’ (n 15) 302. 36 Brummer, ‘Post-American Securities Regulation’ (n 23) 338. 37 Brummer, ‘How International Financial Law Works’ (n 15) 286. 38 Cadmus (n 25) 1803. 39 ibid 1828. 40 Brummer, observing that fewer than 25% of the world’s regulators had signed MoUs with the US, suggests that these MoUs have had ‘demonstrably limited reach in establishing global enforcement cooperation frameworks’: see Brummer, ‘Post-American Securities Regulation’ (n 23) 346–7. 41 Janet Austin, ‘The Power and Influence of IOSCO in Formulating and Enforcing Securities Regulations’ (2015) 15 Asper Review of International Business and Trade Law 1, 4–5. 42 Cadmus (n 25) 1840–41. 43 ‘About IOSCO’ <www.iosco.org/about/?subsection=about_iosco> accessed 27 May 2017. 44 European Securities and Markets Authority (ESMA), ‘Multilateral Memorandum of Understanding on Cooperation Arrangements and Exchange of Information’ (ESMA/2014/608) <https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-608_mmou_on_cooperation_arrangements_and_information_exchange.pdf> accessed 28 May 2017. The ESMA website notes that the updated MMoU, which entered into force in May 2014, has been signed by over thirty authorities in the securities and markets area: See ESMA, ‘MMoU on Cooperation Arrangements and Exchange of Information’ (2014-608) <https://www.esma.europa.eu/document/mmou-cooperation-arrangements-and-exchange-information> accessed 6 October 2017. 45 ‘IAIS Multilateral Memorandum of Understanding on Cooperation and Information Exchange’ (February 2007, revised July 2014) <https://www.iaisweb.org/page/supervisory-material/mmou//file/34363/iais-mmou> accessed 28 May 2017. There are currently 63 signatories to the IAIS MMoU: see IAIS, ‘MMoU Signatories Listed Alphabetically (By Jurisdiction)’ <https://www.iaisweb.org/page/supervisory-material/mmou-signatories/> accessed 6 October 2017. 46 Brummer, ‘Post-American Securities Regulation’ (n 23) 367. 47 ibid 372, 380. 48 Brummer notes that IOSCO membership and its attendant advantages are used to persuade regulators to sign the MMoU and to obtain the legal authority to become a signatory. Further, to participate in the MMoU, a regulator must demonstrate to IOSCO that it has the ability to comply with its provisions. See Brummer, ‘How International Financial Law Works’ (n 15) 301; Brummer, ‘Post-American Securities Regulation’ (n 23) 367. 49 IOSCO, ‘Signatories to Appendix A and Appendix B List’ <www.iosco.org/about/?subSection=mmou&subSection1=signatories> accessed 6 October 2017. 50 The scope of assistance is set out in para 7 of the MMoU, while the specific types of offences for which information requests can be made (including insider dealing, market manipulation and fraudulent or manipulative practices relating to securities and derivatives, among others) are set out in para 4 of the MMoU. 51 ‘About IOSCO’ <www.iosco.org/about/?subsection=about_iosco> accessed 27 May 2017. 52 Verdier, ‘Transnational Regulatory Networks’ (n 10) 146. See also Verdier, ‘Political Economy’ (n 22) 1439–40 (noting that in respect of enforcement and supervision cooperation, ‘the interests of the principal political actors were also aligned in favour of cooperation’). 53 Brummer, ‘Post-American Securities Regulation’ (n 23) 373. 54 Verdier, ‘Transnational Regulatory Networks’ (n 10) 146. 55 IOSCO, ‘IOSCO Approves the Enhanced Standard for Cross-Border Enforcement Cooperation’, (IOSCO/MR/07/2017, Media Release, 31 March 2017) <www.iosco.org/news/pdf/IOSCONEWS456.pdf> accessed 28 May 2017. 56 See IOSCO, ‘Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information’ <www.iosco.org/about/?subsection=emmou> accessed 28 May 2017. These new powers are referred to as the ACFIT powers. 57 ibid. 58 One of the requirements for eligibility to participate in the scheme is that the relevant regulator is a signatory to Appendix A of the MMoU: see Asia-Pacific Economic Cooperation (APEC), ‘Memorandum of Cooperation on the Establishment and Implementation of the Asia Region Funds Passport’ (28 April 2016) para 10.1(a) <fundspassport.apec.org/files/2016/06/28-April-2016-Asia-Region-Funds-Passport-Memorandum-of-Cooperation-signed-by-Australia-Japan-Korea-NZ.pdf> accessed 28 May 2017. 59 For example, foreign investors who seek to make portfolio investments in India must be residents in countries that are signatories to the MMoU, or have signed a bilateral MoU with SEBI: see Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations 2014 (Regulation Number LAD-NRO/GN/2013-14/36/12) s 4(b) <http://www.sebi.gov.in/sebi_data/attachdocs/1389083605384.pdf> accessed 28 May 2017. Hong Kong requires an overseas company seeking to be listed on the Hong Kong exchange to be incorporated in a jurisdiction that is a signatory to the MMoU, or has signed a bilateral MoU with the Hong Kong securities regulator, the Securities and Futures Commission (SFC): see SFC and Hong Kong Exchanges and Clearing Limited (HKEx), ‘Joint Policy Statement Regarding the Listing of Overseas Companies’ (Policy Statement, 27 September 2013) 7 <www.sfc.hk/web/files/ER/PDF/13PR98_statement.pdf> accessed 28 May 2017. 60 Cadmus (n 25) 1841. 61 Verdier, ‘Transnational Regulatory Networks’ (n 10) 147. Verdier’s observations relate to the MMoU; however, the same can be said of the MoUs relating to enforcement. 62 André Dao, Andrew Godwin and Ian Ramsay, ‘From Enforcement to Prevention: International Cooperation and Financial Benchmark Reform’ (2016) 10(2) Law and Financial Markets Review 83, 92. 63 Verdier, ‘Transnational Regulatory Networks’ (n 10) 147. Verdier (n 10) 150, suggests that IOSCO principles have generally been pitched at a general level and are aimed at avoiding ‘precise normative pronouncements on potentially controversial issues’, which would limit their ability to achieve convergence. Zaring suggests that IOSCO has been unable to obtain agreement in relation to several other issues, illustrating the issues faced by TRNs in facilitating convergence. The examples cited by Zaring relate to implementing uniform capital adequacy rules for securities firms (see also David Andrew Singer, ‘Capital Rules: The Domestic Politics of International Regulatory Harmonization’ (2004) 58 International Organization 531, 546–49), and developing or facilitating global accounting standards: see Zaring, ‘Three Challenges for Regulatory Networks’ (n 12) 213; Zaring, ‘Financial Regulation’s Overlooked Networks’ in Ross P Buckley, Emilios Avgouleas and Douglas W Arner (eds), Reconceptualising Global Finance and its Regulation (Cambridge 2016) 82–86. 64 IOSCO, ‘Objectives and Principles of Securities Regulation’ (June 2010) <www.iosco.org/library/pubdocs/pdf/IOSCOPD323.pdf> accessed 28 May 2017. See, generally, Austin (n 41) 14–16. Austin also suggests that IOSCO is able to facilitate convergence in securities laws because its ‘numerous policy statements often become a first reference point’ to guide domestic policy-makers. As part of its efforts to achieve convergence of securities laws, IOSCO has adopted a number of consultative papers, voluntary standards and best practices. 65 ‘About IOSCO’ <www.iosco.org/about/?subsection=about_iosco> accessed 27 May 2017. The FSB, which was established in April 2009 as the successor to the Financial Stability Forum (FSF), is an international body that monitors the global financial system to promote international financial stability. The FSF had been founded by the G7 Finance Ministers and Central Bank Governors, but its membership was broadened in April 2009. The secretariat of the FSB is at the BIS. 66 Austin (n 41) 6–7. 67 ibid 6. 68 See IOSCO, ‘Multilateral Memorandum of Understanding Concerning Consultation and Co-operation and the Exchange of Information (MMoU): Frequently Asked Questions’ 7–8 <www.iosco.org/library/mou/pdf/MoU-FAQS.pdf> accessed 28 May 2017. 69 Austin (n 41) 21–2. 70 Verdier had predicted that offshore financial centres would have strong incentives to resist cooperation: see Verdier, ‘Transnational Regulatory Networks’ (n 10) 147–9. 71 Austin (n 41) 7, 22. 72 Technical Committee of IOSCO, ‘Principles Regarding Cross-Border Supervisory Cooperation’ (May 2010), <www.iosco.org/library/pubdocs/pdf/IOSCOPD322.pdf> accessed 28 May 2017. These mechanisms are examined in the context of cooperation in relation to financial benchmark reform by Dao, Godwin and Ramsay (n 62). 73 IOSCO ibid 8. 74 Dao, Godwin and Ramsay (n 62) 95. 75 Verdier, ‘Transnational Networks and their Limits’ (n 10) (discussing the limitations of TRNs when national preferences conflict and when enforcement of the agreed terms is required); Brummer, ‘Post-American Securities Regulation’ (n 23) 349–55 (discussing challenges to TRNs, such as differences in regulatory philosophies between domestic regulators). 76 According to an Accenture study, first quarter global Fintech investment increased to $5.3 billion in 2016. The study notes that over $50 billion has been invested in the industry since 2010: see Accenture (n 5). 77 For example, Singapore has invested S$225 million ($167 million) over the next five years to growing the Fintech segment in Singapore: see Ravi Menon, Managing Director, Monetary Authority of Singapore (MAS), ‘A Smart Financial Centre’ (speech delivered at the Global Technology Law Conference, Singapore, 29 June 2015) <www.mas.gov.sg/news-and-publications/speeches-and-monetary-policy-statements/speeches/2015/a-smart-financial-centre.aspx> accessed 28 May 2017. In Australia, the Federal government has introduced a number of measures in order to support Australian Fintech businesses, such as venture capital tax concessions as part of its National Innovation and Science Agenda: see Australian Government, ‘Backing Australian Fintech’ (2016) <Fintech.treasury.gov.au/files/2016/03/Fintech-March-2016-v3.pdf> accessed 28 May 2017. 78 Arner, Barberis and Buckley (n 6) 1272; Marc Hochstein, ‘Fintech (the Word, That Is) Evolves’ (American Banker, October 2015) <https://www.americanbanker.com/opinion/fintech-the-word-that-is-evolves> accessed 28 May 2017 (observing that the term’s origin can be traced to the name Citicorp—a predecessor of Citigroup—gave to its Financial Service Technology Consortium). 79 Fisher (n 1) (referring to Western Union’s provision of money transfer services by way of the telegraph as early as the 1870s, and early versions of Visa and Mastercard payment networks established in the 1950s and 1960s). For a history of Fintech see Arner, Barberis and Buckley (n 6). 80 Arner, Barberis and Buckley (n 6). Arner, Barberis and Buckley attribute the emergence of Fintech to ‘(1) financial market deficiencies caused by the GFC and the regulatory response to it; (2) public distrust in the financial services industry, particularly in the US and EU; (3) political pressure for alternative sources of finance for small and medium enterprises; (4) unemployed financial professionals looking to apply their talents; and (5) the commoditization of technology and the market penetration of the internet and mobile phones, particularly smart phones’: see Douglas Arner, Jànos Barberis and Ross P Buckley, ‘Fintech, Regtech and the Reconceptualization of Financial Regulation’ (forthcoming, 2017) Northwestern Journal of International Law and Business <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2847806> accessed 28 May 2017. An empirical study of Fintech start-ups found that countries experience more Fintech start-up formations when capital markets are well-developed, the latest technology is readily available, and people possess more mobile telephone subscriptions. The study also found that the available labour force has a positive impact on the number of Fintech start-ups, while the soundness of the financial system has a negative impact (the more sound the financial system in each country, the lower the number of start-ups): see Christian Haddad and Lars Hornuf, ‘The Emergence of the Global Fintech Market: Economic and Technological Determinants’ (CESIFO Working Paper 6131, October 2016) <https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2830124> accessed 28 May 2017. 81 For example, the FCA’s innovation hub has the broad objective of fostering innovation in financial services in the interests of consumers by providing support for, and engaging with, innovator businesses. See FCA, ‘Objectives of Innovation Hub’ <https://www.fca.org.uk/firms/project-innovate-innovation-hub/objectives> accessed 28 May 2017. 82 For example, to obtain support from the FCA’s innovation hub, the application needs to show that: (1) the product is a genuine innovation ie it is ground-breaking or significantly different; (2) the innovation offers a good prospect of identifiable benefit to consumers (either directly or via heightened competition); (3) the business has invested appropriate resources in background research to understand the regulations; and (4) the business has a genuine need for support through the innovation hub. See FCA, ‘Criteria for Support’ <https://www.fca.org.uk/publication/forms/project-innovate-criteria.pdf> accessed 28 May 2017. 83 Erik Vermeulen, Mark Fenwick and Wulf A Kaal, ‘Regulation Tomorrow: What Happens when Technology is Faster than the Law’ (TILEC discussion paper 2016-024, October 2016) <http://ssrn.com/abstract=2834531> accessed 28 May 2017. 84 Greg Medcraft, ASIC Chairman and Former Chairman of IOSCO, ‘Cross-border Innovation: Enabling Fintech and Regtech Innovations Across Borders’ (speech delivered at the International Institute of Finance Chief Risk Officer Forum, Singapore, 16 November 2016) <download.asic.gov.au/media/4080335/greg-medcraft-speech-iif-cro-forum-published-17-november-2016.pdf> accessed 28 May 2017. Regtech—a contraction of the terms ‘regulatory’ and ‘technology’—has evolved to help reduce the reliance of regulators on manual inputs and reduce costs. It has been observed that more than 120 start-ups already provide Regtech solutions. See Citi GPS, ‘Digital Disruption—Revisited’ (January 2017), 39 <https://ir.citi.com/FIanoC50Aw5dWM7kPzoLKU3buhKF1LETHM1deMYw1%2F2zNzWFg8zmYw%3D%3D> accessed 28 May 2017. It has also been suggested that Regtech will allow regulators to use an ever-expanding range of techniques in order to keep up with the rapid evolution of markets. See Lawrence G Baxter, ‘Adaptive Financial Regulation and Regtech: A Concept Article on Realistic Protection for Victims of Bank Failures’ (2016) 66 Duke Law Journal 567, 598; Arner, Barberis and Buckley ‘Fintech, Regtech and the Reconceptualization of Financial Regulation’ (n 80). Regulators have also made efforts to remain engaged in this space: for example, ASIC has released a report outlining its current initiatives and its proposed future approach in relation to Regtech: see ASIC, ‘Report 523: ASIC’s Innovation Hub and our Approach to Regulatory Technology’ (26 May 2017) <download.asic.gov.au/media/4270022/rep523-published-26-may-2017.pdf> accessed 30 May 2017. 85 There have been calls for governments to engage in international dialogue to help establish an international Fintech presence: see, for example, Digital Finance Institute and McCarthy Tétrault LLP, ‘FinTech in Canada—Towards Leading the Global Financial Technology Transition (British Columbia Edition)’ (2016) 46, 47 <www.digitalfinanceinstitute.org/wp-content/uploads/2016/09/Fintech-Report-2016-1.pdf> accessed 28 May 2017 (noting that governments and public bodies in Canada can support the Fintech sector in four key ways: (1) investing in Canadian FinTech; (2) supporting FinTech co-working spaces in accelerators; (3) creating a regulatory sandbox; and (4) helping establish both a national and an international FinTech presence and supporting the engagement of international dialogue with industry organizations). 86 ‘Innovation Hubs Co-operation Agreement between FCA and ASIC’ (23 March 2016) (‘FCA-ASIC Agreement’) <download.asic.gov.au/media/3797602/fca-asicagreementsigned230316-1.pdf> accessed 28 May 2017. In the UK, the term ‘FinTech bridges’ refers to government, private sector and regulatory arrangements, of which the Fintech MoUs form part. Some, though not all, of the Fintech MoUs have been entered into as part of FinTech bridges. 87 See, eg ‘Co-operation Agreement between FCA and MAS’ (11 May 2016) <https://www.fca.org.uk/publication/mou/fca-monetary-authority-of-singapore-co-operation-agreement.pdf> accessed 28 May 2017; ‘Innovation Functions Co-operation Agreement between ASIC and MAS’ (16 June 2016) (‘ASIC-MAS Agreement’) <download.asic.gov.au/media/3898678/mas-mou-june-2016.pdf> accessed 28 May 2017; ‘Innovation Functions Co-operation Agreement between ASIC and OSC’ (1 November 2016) (‘ASIC-OSC Agreement’) <download.asic.gov.au/media/4062001/asic-osc-cooperation-agr-executed-nov-1-2016.pdf> accessed 28 May 2017; ‘Co-operation Agreement between FCA and HKMA’ (7 December 2016) (‘FCA-HKMA Agreement’) <https://www.fca.org.uk/publication/mou/fca-hkma-co-operation-agreement.pdf> accessed 28 May 2017; ‘Co-operation Agreement between ASIC and SFC’ (13 June 2017) <http://download.asic.gov.au/media/4288984/asic-hksfc-agreement-20170613.pdf> accessed 6 October 2017; ‘Innovation Functions Cooperation Agreement between ASIC and the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA)’ (July 2017) <http://download.asic.gov.au/media/4400645/abu-dhabi-asic-mou-july-2017.pdf> accessed 6 October 2017; ‘Innovation Cooperation Agreement between ASIC and Securities Commission Malaysia’ (June 2017) <http://download.asic.gov.au/media/4376907/fintech-cooperation-agreement-asic-and-sc-malaysia.pdf> accessed 6 October 2017; ‘Cooperation Agreement between SFC and Securities Commission Malaysia’ (14 September 2017) <http://www.sfc.hk/web/EN/files/ER/MOU/MOU_Securities%20Commission%20Malaysia_14.9.2017.pdf> accessed 6 October 2017; ‘Innovation Functions Co-operation Agreement between FCA and OSC’ (22 February 2017) <https://www.fca.org.uk/publication/mou/fca-osc-co-operation-agreement.pdf> accessed 28 May 2017; ‘Co-operation Agreement between FCA and SFC’ (12 May 2017) <https://www.fca.org.uk/publication/mou/fca-sfc-co-operation-agreement.pdf> accessed 28 May 2017. 88 In addition to the MoU it has signed with Australia (n 87), MAS has signed an MoU with France’s Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers, Japan’s Financial Services Agency, ADGM, the Bank of Thailand, and the Association of Supervisors of Banks of the Americas (an umbrella organization that includes 41 financial sector regulation and supervision agencies). See MAS, ‘Singapore and France bolster FinTech ties with cooperation agreements’ (Media Release, 27 March 2017) <www.mas.gov.sg/News-and-Publications/Media-Releases/2017/Singapore-and-France-bolster-FinTech-ties-with-cooperation-agreements.aspx> accessed 28 May 2017; MAS, ‘Singapore and Japan establish FinTech Cooperation Framework’ (Media Release, 13 March 2017) <www.mas.gov.sg/News-and-Publications/Media-Releases/2017/Singapore-and-Japan-establish-FinTech-Cooperation-Framework.aspx> accessed 28 May 2017; MAS, ‘MAS and ADGM Collaborate to Foster FinTech Innovation and Cross-Border Activities’ (Media Release, 8 March 2017) <www.mas.gov.sg/News-and-Publications/Media-Releases/2017/Monetary-Authority-of-Singapore-and-Abu-Dhabi-Global-Market.aspx> accessed 28 May 2017; MAS, ‘Bank of Thailand and MAS sign FinTech Cooperation Agreement and Banking Supervision MoU’ (Media Release, 11 July 2017) <http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/Bank-of-Thailand-and-Monetary-Authority-of-Singapore.aspx> accessed 6 October 2017; and MAS, ‘MAS and ASBA sign FinTech MoU’ (Media Release, 9 June 2017) <http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/MAS-and-ASBA-sign-FinTech-MOU.aspx> accessed 6 October 2017. 89 FCA, ‘Financial Regulators of Japan and UK Announce Exchange of Letters on Co-operation Framework to Support Innovative FinTech Companies’ (Media Release, 9 March 2017) <https://www.fca.org.uk/news/press-releases/financial-regulators-japan-and-uk-announce-exchange-letters-co-operation> accessed 28 May 2017; ASIC, ‘Japan and Australia Cooperate on Fintech’ (Media Release, 23 June 2017) <http://asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-199mr-japan-and-australia-cooperate-on-fintech/> accessed 6 October 2017. More recently, Japan has also entered into a Fintech agreement with ADGM. 90 See, for example, clause 3.1 of FCA–ASIC agreement, ASIC–OSC agreement, and ASIC–MAS agreement. 91 ibid. 92 If the business has commenced operations it is also required to provide a progress report on operations. See ‘International Referral Request Form’ <download.asic.gov.au/media/4007296/international-referral-request-sept-2016.docx> accessed 28 May 2017. The form does not require the business to specify which jurisdiction it will seek referral for so presumably it can be used by a business to seek a referral to more than one jurisdiction, if desired. 93 See, for example, clauses 2.4.1 and 2.4.2 of the ASIC–FCA and ASIC–MAS agreements. 94 Assistance during the pre-authorization phase may include discussions of the application process and any regulatory issues identified by the business, and ensuring that the business understands the regulatory regime. During the authorization process, the authority will allocate staff that are knowledgeable about financial innovation to consider the application, and possibly implement a specialized process for innovator businesses. After a business is authorized, the business is provided with a dedicated contact for assistance. The ASIC–MAS and ASIC–FCA agreements limit the period of time during which assistance is provided after authorization to one year; however the ASIC–OSC agreement does not include a time limitation for the provision of assistance. 95 ‘Co-operation Agreement between ASIC and Capital Markets Authority of Kenya (“CMA”)’ (21 October 2016) <download.asic.gov.au/media/4052135/asic-cma-fintech_cooperation_agreement-1.pdf> accessed 28 May 2017; ‘Co-operation Agreement between ASIC and OJK’ (21 April 2017) <download.asic.gov.au/media/4223673/asic-ojk-mou-agreement-signed-21042017.pdf> accessed 28 May 2017; ‘Co-operation Agreement between FCA and Financial Services Commission of the Republic of Korea (“FSC”)’ (22 July 2016) <https://www.fca.org.uk/publication/mou/fca-korean%20fsc-co-operation-agreement.pdf> accessed 28 May 2017; ‘Co-operation Agreement between FCA and People’s Bank of China (“PBOC”)’ (11 November 2016) <https://www.fca.org.uk/publication/mou/fca-pboc-co-operation-agreement.pdf> accessed 28 May 2017. 96 That is, for a business to be referred by either regulator it will have needed to satisfy this criteria. 97 OSC, ‘OSC LaunchPad Request for Support’, criteria C1 <https://www.osc.gov.on.ca/documents/en/osc-launchpad-request-for-support_v2.pdf> accessed 29 May 2017. 98 ASIC–MAS Agreement clause 5.6. A similar clause is included in the more recent MoU between the SFC and Securities Commission Malaysia (clause 5.3). 99 ASIC–OSC Agreement clause 8.2. 100 See eg ASIC–MAS Agreement clause 5.2. 101 ASIC, ‘Fintech: ASIC’s Approach and Regulatory Issues’ (Melbourne Money and Finance Conference, July 2016) <download.asic.gov.au/media/3962105/melbourne-money-and-finance-conference-2016-fintech.pdf> accessed 29 May 2017. More recently, ASIC also noted that it has received two referrals through its Fintech MoUs: see ASIC, ‘Report 523’ (n 84) para 45. 102 For example, Cadmus’ review of SEC MoUs notes that confidentiality provisions included in the MoUs limit meaningful study. Cadmus discusses the drafting of regulatory MoUs and the existence of an exception to the US Freedom of Information Act covering exchanges with foreign financial regulators. Cadmus suggests that ‘an evaluation of [the MoUs’] effectiveness should be carried out by the SEC or another body with access to confidential files obtained from foreign regulators’. See Cadmus (n 25) 1803. 103 As noted above, there are significant parallels between the enforcement MoUs and Fintech MoUs, and the confidentiality provisions are another example of this. For example, the confidentiality clause discussed by Cadmus, (n 25) 1856, in the SEC’s enforcement MoU with Argentina is essentially the same as clause 6.4 of the ASIC–OSC Agreement (n 87). 104 As noted above, while the referred business qualifies for assistance from the ‘receiving authority’, this does not guarantee authorization. See eg ASIC–OSC Agreement clause 5.5. 105 Dao, Godwin and Ramsay (n 62) 95. 106 Verdier, Brummer (n 75). 107 IOSCO, ‘Principles Regarding Cross-Border Supervisory Cooperation’ (n 72) 15. 108 For example, Greg Medcraft has stressed the importance of using ‘formal and informal communication channels … to work toward aligning our philosophies and approaches to regulation’: see Medcraft (n 84) 4. See also Arup Kumar Chatterjee (Asian Development Bank), ‘Why the Sandbox Approach Works for Fintech Development’ (Asian Development Blog, 24 May 2016) <https://blogs.adb.org/blog/why-sandbox-approach-works-fintech-development> accessed 29 May 2017 (noting the lower regulatory barriers for Fintech companies that will result due to the MoUs). 109 IOSCO, ‘Research Report on Fintech’ (n 8). 110 ibid 70. 111 ibid chs 2–5. 112 ibid 70–74. The report also briefly notes other challenges such as digital onboarding, cyber security and data protection concerns, investor literacy and investor education, and the need for regulators to stay up-to-date with financial innovation (by establishing dedicated offices, contact points and hubs, or regulatory sandboxes). 113 ibid 70. 114 Basel Committee, ‘Sound Practices: Implications of Fintech Developments for Banks and Bank Supervisors’, (Consultative Document, August 2017), 33 <http://www.bis.org/bcbs/publ/d415.htm> accessed 6 October 2017. 115 FSB, ‘Financial Stability Implications from Fintech: Supervisory and Regulatory Issues that Merit Authorities’ Attention’ (27 June 2017) <http://www.fsb.org/wp-content/uploads/R270617.pdf> 13 accessed 6 October 2017. 116 ibid. The three priority areas cited are (1) managing operational risks from third-party service providers; (2) mitigating cyber risks; and (3) monitoring macro-financial risks. The other issues are: (4) cross-border legal considerations and regulatory arrangements; (5) governance and disclosure frameworks supporting big data analytics; (6) assessing the regulatory perimeter and updating it on a timely basis; (7) shared learning with a diverse set of private sector parties; (8) further developing open lines of communication across relevant authorities; (9) building staff capacity in new areas of required expertise; and (10) studying alternative configurations of digital currencies. 117 IOSCO, ‘EMMoU’ (n 56). 118 Janet Austin, ‘IOSCO’s Multilateral Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information’ (2012) 23 Criminal Law Forum 393. 119 ibid 419. 120 n 9 and corresponding text. 121 European Parliament, ‘Special Committee on the Financial, Economic and Social Crisis’ (Documentation Relating to the Committee’s Work from October 2009 to July 2011, July 2011) 157 <http://www.europarl.europa.eu/document/activities/cont/201109/20110901ATT25750/20110901ATT25750EN.pdf> accessed 29 May 2017. 122 Chiu (n 2) 92. 123 ibid. 124 Medcraft (n 84). 125 Olivier Guersent, EC Director-General, Financial Stability, Financial Services and Capital Markets Union, ‘Speech at the Swiss Finance Council’ (7 March 2017) <https://ec.europa.eu/info/sites/info/files/olivier-guersent-speech-swiss-finance-07032017_en.pdf> accessed 29 May 2017. 126 ibid. 127 EC, ‘Consultation Document—Fintech: A More Competitive and Innovative European Financial Sector’ (May 2017) 15 <https://ec.europa.eu/info/sites/info/files/2017-fintech-consultation-document_en_0.pdf>. 128 ibid 17. 129 APEC, ‘Asia Region Funds Passport’ (n 58). The agreement came into effect in June 2016. An example of a mutual recognition MoU exists between Australia and the US covering securities exchanges and broker–dealers. See ‘Mutual Recognition Arrangement between the United States Securities and Exchange Commission and the Australian Securities and Investments Commission, together with the Australian Minister for Superannuation and Corporate Law’ (25 August 2008) <download.asic.gov.au/media/1346672/SEC_framework_arrangement_aug_08.pdf> accessed 29 May 2017. This arrangement, as well as mutual recognition more broadly, is discussed by Verdier: see Pierre-Hugues Verdier, ‘Mutual Recognition in International Finance’ (2011) 52 Harvard International Law Journal 56. Another example of a mutual recognition MoU was implemented between ASIC and the SFC, in relation to collective investment schemes; however it has been observed that this arrangement has had limited effect due to taxation issues and the difficulties of international investors in understanding the responsible entity structure for management investment schemes in Australia: see Andrew Godwin and Ian Ramsay, ‘The Asia Region Funds Passport Initiative: Challenges for Regulatory Co-ordination’ (2015) International Company and Commercial Law Review 236, 238. 130 Godwin and Ramsay ibid 238. One area in which mutual recognition arrangements have been particularly relevant is the OTC derivatives market reforms: see Andrew Godwin, Ian Ramsay and Edwin Sayes, ‘Assessing Financial Regulatory Coordination and Integration with reference to OTC Derivatives Regulation’ (2017) 12(1) Capital Markets Law Journal 38. 131 APEC, ‘Consultation Paper: Arrangements for an Asia Region Funds Passport’ (16 April 2014) <http://treasury.gov.au/ConsultationsandReviews/Consultations/2014/Asia-Region-Funds-Passport> accessed 29 May 2017. 132 NZ Ministry of Business Innovation & Employment Asia Region Funds Passport, ‘Asia Region Funds Passport’ <http://www.mbie.govt.nz/info-services/business/business-law/asia-region-funds-passport> accessed 29 May 2017. 133 Medcraft (n 84) 4. 134 MAS, ‘IFC and Monetary Authority of Singapore Collaborate to Advance FinTech Innovation in Asia’ (Media Release, 23 May 2017) <http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/IFC-and-Monetary-Authority-of-Singapore-Collaborate-to-Advance-FinTech-Innovation-in-Asia.aspx> accessed 30 May 2017. 135 EC, ‘Consultation Document’ (n 127) 16. 136 Arner, Barberis and Buckley, (A New Post-Crisis Paradigm) (n 6) 1307. For an examination of the key differences between the sandbox regimes that have been implemented to date, see Lev Bromberg, Andrew Godwin and Ian Ramsay, ‘Fintech Sandboxes: Achieving a Balance between Regulation and Innovation’ (2017) 28 Journal of Banking and Finance Law and Practice (forthcoming). 137 EC, ‘Consultation Document’ (n 127) 15; EC, ‘Summary of Contributions to the “Public Consultation on FinTech: a more Competitive and Innovative European Financial Sector”’ (2017) 9 <https://ec.europa.eu/info/sites/info/files/2017-fintech-summary-of-responses_en.pdf> accessed 6 October 2017. 138 CSA, ‘Canadian Securities Administrators Launches a Regulatory Sandbox Initiative’ (Media Release, 23 February 2017) <www.osc.gov.on.ca/en/NewsEvents_nr_20170223_regulatory-sandbox.htm> accessed 29 May 2017. 139 ibid. 140 For example, the OSC has created a new innovation hub called ‘LaunchPad’: see OSC, ‘About OSC Launchpad’ <https://www.osc.gov.on.ca/en/about-osc-launchpad.htm> accessed 29 May 2017. 141 CSA, ‘Regulatory Sandbox Initiative’ (n 138). 142 MAS (n 134). 143 FSA ‘Turner Review’ (n 2); nn 120–23 and corresponding text. © The Author(s) (2017). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oup.com

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