<strong>By: Bridget King, a Director of Finance and Banking at Cliffe Dekker Hofmery</strong>

<h2>Technology offers immense development potential if you don’t allow compliance to trip you up</h2>

The world is in the midst of a revolution and there is both excitement and fear depending on the context of the discussion. The fourth industrial revolution is driving unprecedented advancements in the realms of big data, the internet of things, artificial intelligence, blockchain and much more.

The fear stems from entering the unknown where potential job losses and cybercrime loom ever large. The excitement is borne from an anticipation of the improvement of lives and streamlining of services. The certainty is that it is happening right now.

It is to this backdrop that the World Economic Forum on Africa took part in Cape Town recently under the umbrella theme of “shaping inclusive growth and shared futures in this technological revolution”.

Fintech is an exciting fourth industrial revolution frontier industry. In Africa, fintech represents the best opportunity we have ever seen in terms of democratising the financial landscape. Often touted as a route to bank the unbanked, service the underserviced and drive financial inclusion, fintech will no doubt enjoy a fundamental part of our shared future.

Whether fintech takes the form of mobile money, digital-only banks that are able to circumvent the lack of infrastructure that traditional brick-and-mortar banks face or cryptocurrencies or crypto-exchanges, there is a scramble all around the world to develop fast, convenient, safe and reliable platforms.

Crypto-assets, in particular, are in the spotlight for a variety of reasons. The anonymity that the technology allows is both a strength and risk. While blockchain – the platform that cryptocurrencies are built on - fundamentally changes how value is shared and exchanged, it also has the potential to be exploited for fraud, crime and the funding of nefarious activities such as terrorism.

Fintech is fundamentally challenging the financial landscape and because of this it is not a matter of if regulation catches up, but a matter of when.

Bridget King, a Director of Finance and Banking at Cliffe Dekker Hofmery, says that there has been some leeway for the fintech industry to develop, but that as regulators catch up with innovation, it will be increasingly important to be on the right side of compliance.

“Regulators have given innovators some room, to allow them to develop and allow the fintech industry to evolve,” says King. “This has allowed innovative technology businesses to develop products and platforms that have the potential to vastly improve access to financial services and thus drive development and shared growth,” she says, cautioning, however, that regulators will eventually have the final say on how products or platforms, such as cryptocurrencies and crypto exchanges, can and can’t be used.

There are varying levels of regulation around the world, with no fixed standard yet, and this uncertain environment makes it more difficult for start-up businesses and innovators to plan long term. Accordingly, King says it would be a strategic advantage for start-ups to innovate alongside experts to help navigate, mitigate and pre-empt regulatory challenges.

“According to an Intergovernmental Fintech Working Group consultation paper on policy proposals for crypto assets, there are 150 countries where the government pays no attention to the existence of crypto assets,” says King. “Three countries currently have had an official body release a statement recognising the existence of crypto assets, but no approach to dealing with them has been defined. There are 25 countries where an official body has recommended an approach to dealing with cryptocurrencies and crypto-related businesses or activities.

“Five countries have issued a guidance to govern the use of crypto assets and three countries have predefined conditions, and once complied with, could lead to formal authorisation to provide crypto-related products and services,” she says.

According to the same report, 11 countries have either partially or completely banned all institutions and individuals from using crypto assets.

According to King, it is prudent that if you design, build and invest in fintech and crypto assets, you should do so with the legal framework in mind. If you haven’t considered the legal framework, she says, there is a chance you would have to start again which would be very costly and possibly catastrophic for your business.

“The point of fintech is to enable growth and development. Legal roadblocks should not be the death knell to a good idea,” says King.

“There are a lot of cypto-related investment products, payment products and derivatives of crypto assets,” she explains. “You should consider whether you are creating a collective investment scheme, or are you inadvertently a deposit-taking institution?”

King’s advice is clear. “If you design around regulation, that’s your first prize. There is no point being innovative if you are going to innovate into a regulatory roadblock.”