The complexity of providing regulatory frameworks for transformational banking is well known. While regulators are keen to create mechanisms to ensure access to banking services also for the poor, they have to the risks in changing existing regulations. I have written about these risks. (Read here). To recap, the following are the typical risks that one should be thinking of:Utilising the system for criminal activities (money laundering, funding terrorism etc.)Protecting the customer so that deposits are safe and also information protectionThe creation of moneyLately, in discussions with regulators and what I have seen in the market, it seems that regulators are also apprehensive about an competitive imbalances that may be created by allowing transformational banking. My first reaction was that this is not the mandate of regulators, but thinking about it, this makes a lot of sense. The natural forces in a free market system ensure behaviour that will not harm the customer, keep costs in check and contain criminal actions. If these forces are lost because of a dominant player all of these benefits will not materialise. Regulators concerned about the balance of competitive forces may just be getting it right.
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