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More of the Same or Real Transformation: Does FinTech Warrant New Regulation?

This Article examines how and why regulating FinTech is different. This question relates to the ongoing debate of whether FinTech is simply “more of the same”—primarily exacerbating existing failures and challenges and hence not requiring new regulations—or a radical transformation that poses unique challenges and thus requires tailored regulatory responses. The Article argues that when looking at each FinTech application individually, FinTech arguably does not create novel challenges and failures, but mainly exacerbate existing ones. When looking at the FinTech phenomenon from a broader perspective, however, it apparently introduces fundamental changes that require corresponding changes in financial regulation. The Article demonstrates this argument from three perspectives. From a transactional perspective, it shows that financial services increasingly rely on emerging technologies (e.g., artificial intelligence and big data) and novel business models (e.g., ICO, P2P lending) to disintermediate traditional financial functions and create new financial activities. From a structural perspective, it shows that the financial industry transformed from a homogenous industry dominated by few large financial institutes into a more dispersed industry that includes increasingly diverse types of market participants (FinTech startups, TechFin companies, and financial institutes). From a more abstract perspective, it shows that FinTech innovations tend to grow exponentially, creating new challenges related to the “pacing problem”. The Article argues that these broad, fundamental changes pose new regulatory challenges, as well as exacerbating existing ones, in a way that requires regulators to both reevaluate their existing regulatory strategies and develop new regulatory tools and approaches. It concludes by proposing tailored regulatory responses.