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Ripple: Why Europe’s Fintech Regulatory Approach Is World-leading

Regulations are not a barrier to innovation but rather a groundwork to ensure future success. The regulation in European fintech surrounding emerging technologies like AI, crypto and blockchain can act as guidance for other regions to follow, as innovation has not been hindered. Instead, it has been guided in a certain way to ensure consumer trust.

Susan Friedman is the Head of Public Policy at Ripple where she engages policymakers worldwide to guide and advise on cryptocurrency and blockchain regulation. Prior to this, Friedman was the Senior Advisor to CFTC Chairman Heath Tarbert in his previous capacity as Treasury’s Assistant Secretary for International Markets. In this role, she regularly advised and collaborated with Treasury officials on matters including international financial services regulation, investment security, and trade.

Friedman explains how regulations are the only way to ensure consumer trust, as without this trust, no one will use any innovations that are created:

Susan Friedman, Head of Public Policy, Ripple
Susan Friedman, Head of Public Policy, Ripple

As a global financial superpower, the US has often been the provider of regulatory blueprints that spur new innovation and investment. The growth of Silicon Valley is one example of how it has provided the right framework to allow technology to transform sectors like financial services, healthcare or FMCG. But, as with other leading financial states, it cannot afford to rest on its laurels.

In Europe, the fintech industry is on an unprecedented hot streak.  In the first half of 2021 alone, fintech investment in the region reached $39.1billion – and a number of established companies (such as Standard Chartered, Revolut and PayPal) have created dedicated strands of crypto activity. But in this success, the industry is almost unique. Just last month, the latest PMI (Purchasing Managers Index) survey, often seen as the bellwether of economic trends in the manufacturing and service sectors, found that growth in the region was slowing while inflationary pressures were on the rise – being impacted by lower manufacturing output and creaking supply chains.

So what is behind this growth in fintech at a time when other industries are stagnant, and what can other financial superpowers learn from its approach?

Nurturing growth

It would be an oversight to miss the link between increased regulatory activity in the fintech sector and the industry’s growth. In the last few years, European regulators and local market authorities have introduced a range of new guidance and regulations in the finance and fintech sectors. These have been designed to help fuel innovation and enshrine customer protections as the industry develops, and include landmark initiatives such as Open Banking in the UK and PSD2 and the Markets in Crypto Assets Regulation (MiCA) (which is still being debated) in the EU.

In many ways, it’s this active regulatory environment that encourages growth and has acted as a catalyst to the space by providing legal clarity to market participants. The result? A booming European fintech scene, underpinned by regulatory frameworks that enables increased competition, leading to lower prices for consumers, better quality services and greater innovation from financial institutions.

Regulation is not the antithesis of innovation

For any hyper-growth industry, it’s easy to conflate industry guidance and protections with attempts to curtail innovation. But regulation, traditionally seen as an impediment to growth and flourishing ideas, shouldn’t be viewed as the enemy. Just like in the US and elsewhere around the world, Europe has had its doubters. Tom Blomfield – founder of Monzo – encapsulated his frustration at the idea of intervention when he famously said that “positive innovation in Open Banking has been nil.” His words are emblematic of how many others feel in the industry.

But Europe’s regulatory environment is driving the fintech industry forwards and as we move into a future guided by emerging technologies like AI, crypto or blockchain, it is laying the groundwork for other global regulators to follow:

  1. European regulation is providing a framework for long-term innovation: As tech evolves and grows into the mainstream, regulatory oversight ensures long term growth and development. In turn, it also provides a framework within which we can continue to innovate, grow and drive lasting change. This is particularly evident in the FCA’s proposed ‘regulatory nursery’ – which is soon to go live and aims to give newly authorised UK fintechs additional support and guidance in their infancy while also promoting robust regulation in the sector. Additionally, UK fintechs now have the opportunity to participate year-round in the FCA sandbox, rather than on a cohort basis only.
  2. Putting its own stamp on best practice innovation and collaboration with the private sector: Innovation and collaboration with the private sector is an approach that has worked particularly well in the Asian fintech space. In Singapore, for instance, clear regulation and regular collaboration with the private sector has led to the growth and development of the digital asset ecosystem, including Central Bank Digital Currency (CBDC) innovation. A nurturing regulatory environment combined with industry engagement has created a strong ecosystem that is willing to collaborate to build better solutions, helping to push forward game-changing trials. The same approach has been taken with the UK’s Digital Pound Foundation, of which Ripple is a trusted supporter, as well as the Digital Euro Project, which the European Central Bank launched earlier this year.
  3. Demonstrating an understanding that regulation is vital to winning consumer trust: With many consumers still unclear on the role that cryptocurrencies and blockchain have to play in improving their lives, it’s evident that tailored and flexible regulation has a role to play in winning over consumer trust. Europe’s Open Banking, and its successor, Open Finance, will allow consumers to see first-hand the role that fintech innovation can have in improving how they manage certain services. These will enable truly game-changing technologies for citizens and have been created within a framework that people can trust.

These projects are just the tip of the iceberg in terms of regulation and guidance in the European fintech space, and show that with the appropriate building blocks, innovation is often right around the corner.

What’s more, the direction Europe is taking will undoubtedly help to accelerate the mainstream adoption of crypto and blockchain as part of a wider boom in the fintech sector. Global financial superpowers should pay close attention to and learn from Europe’s support of fintech operations if they wish to play a leading role in the future of financial services.


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