Discussion of Enriques & Ringe "The Case for a FinTech Mentorship Regime" Presented by: Schuster Date: 27 March 2020 Overview - Paper highlights some important regulatory issues arising in the context of (mainly consumer-facing, bank-like) fintech - Paper argues convincingly that current framework likely enables significant regulatory arbitrage and may result in inadequate supervision of fintech that, at least initially, remain outside the regulatory perimeter - Demonstrates why regulatory sandboxes are not the answer - Paper proposes an optional mentorship scheme that would allow firms to fully bring fintech inside our financial regulation framework without overburdening them with regulatory requirements Some Preliminary Thoughts - COVID-19 and Fintech? • Fintech discussed in the paper seem to have a business model that combines regulatory arbitrage with easy and cheap access to equity capital for currently unprofitable (often "moonshot"-like) ventures. • How is the current crisis going to change this? - Superior technology or starting from scratch advantage? - How special, and how significant, is SaaS/White Label Fintech really? And do you need this for the paper? Risks Of Current Model - Micro prudential risks: • Excellent outline of the kinds of risks that Fintech may pose - • "Move fast and break things" • With some of the examples, question whether this unique to Fintech • Similar problems within legacy FLS? • Another way of putting it: necessary incompleteness of contracts? Macro prudential risks: • Here, the case seems somewhat weaker based on available evidence • Risks seem to stem from the kind of outsourcing which isn't necessarily related to Fintech • Shadow banks? Regulatory Sandboxes - I agree that this doesn't solve the problem identified in the paper • - My main worry: advice and regulation hard to square? Selectivity doesn't seem to rule out "marginal" innovation based on past participants (in the UK)... - But: Selectivity introduces other concerns - Timeline challenging, but is pre-sandbox white-labelling a solution here? Mentorship Program - This could be attractive to some! - But: is optionality self-defeating for stated purposes? - My main concerns: • How attractive will this be for Fintech?  Will this feel like a bear hug? More integration, more data sharing, less of an advantage?  Time to adjust to reduced demand for in-person services / grip hold?  Fintech as mere brokers and valuation fantasy... • - How attractive is this for legacy banks? Optionality means that benefits for the main players are somewhat unclear (to me) • Do regulated entities want to import regulatory risk they cannot control? • Do Fintech want to be "division of ..."? - Regulation as barrier to entry - Proposal if adopted widely would in my view clearly be an improvement of status quo - But gains are mainly external, so it may be a challenge to make this attractive Conclusion - Proposed "Mentorship Program" would likely lead to better regulatory outcomes - Adoption would, in my view, be a challenge - Would making it “mandatory” work?