2.1 Landscape of China’s FinTech

Looking back at the development of China’s FinTech over the past decade, we find that FinTech was introduced into China’s financial-services industry as early as 2004 but, at that time, FinTech only existed as a traditional financial institution’s IT system.Footnote ¹⁰ With the emergence of payment and peer-to-peer lending, FinTech has penetrated from the back-end stage to the core business of finance. Moreover, with the enrichment of other technical means, the mutual attraction between science and technology will make financial and practical life more closely interacted and eventually integrated into social life. Traditional financial institutions have begun to actively explore the path of FinTech transformation. Mobile banking based on mobile Internet, precision marketing based on big data, and service optimization based on intelligent operation are widely used to promote banking services for reducing cost, improving efficiency, and optimizing customer experience.Footnote ¹¹

The FinTech firms represented by BAT (Baidu, Alibaba, and Tencent) in China have made remarkable achievements. The application of FinTech mainly appears in the fields of online lending, equity crowdfunding, Internet payment, and Internet financing. In many ways, the leadership of China’s FinTech is already happening at the industry level, now leading innovation in the financial sector and being replicated globally.Footnote ¹² For example, AliPay’s introduction of facial-recognition payment in March 2015Footnote ¹³ was followed by MasterCard in July 2015.Footnote ¹⁴ Similarly, small and medium-sized enterprises (SMEs) lending by Alibaba in 2010 using alternative credit-scoring data from its e-commerce platform that was introduced in the US and Japan in 2012 and is now being undertaken by Amazon in Europe.Footnote ¹⁵

China Merchants Bank—the leader of the 12 largest joint-stock banks in China—proposed to be a “FinTech bank” in 2017. The top five banks in the wealthy class, the top five national banks at the forefront of the World Bank’s top 500, have joined forces with FinTech firms. Ping-An Bank has achieved many results in the fields of big data, artificial intelligence, and blockchain.

2.2 Two-Dimensional Risks

The integration of finance and technology has constructed a new and rapid financial ecology outside the traditional financial structure. The openness, interconnectivity, and higher technology content of FinTech, especially in the field of “Internet finance” and peer-to-peer lending, make financial risks more subtle, information technological risks are more prominent, and the potential systemic and periodical risks are more complicated. As the size of the FinTech industry grows, so too will the technological risk and financial risk connected with it. One should not underestimate the risks that would face a broad expansion of FinTech. Internet platforms created novel opportunities and formats for financial services and consumers relationships. Such platforms have simultaneously created new risks for consumers and dislocation for financial-services providers.Footnote ¹⁶ The events of illegal fundraising in the name of “Internet finance” and peer-to-peer lending are endless, all in the cloak of FinTech, enveloping the core of investment, speculation, and even scams. Such a phenomenon not only expands the local and systemic financial risks, but also suspects fraud, pyramid schemes, and other illegal and criminal acts, which disrupts seriously the financial laws and rules.

FinTech may be obscuring risk. The FinTech model bears many of the features of financial risk and technological risk, and the level of such risks is likely to increase as the industry grows. But recent regulation of the financial-service industry has focused on a different segment of the market and has largely ignored the unique problems associated with FinTech. As a result, regulators have neither the tools nor the expertise necessary to properly guide and constrain the behaviour of FinTech firms.Footnote ¹⁷ Many aspects of the internal workings of FinTech remain unknown. And it is from this lack of understanding that concerns about risks are born.Footnote ¹⁸ The financial plug-in of technology wings is stronger, broader, and more rapidly destructive, and the consequences of its impact on the financial market are difficult to predict.Footnote ¹⁹ Therefore, it is necessary to deconstruct the two-dimensional risks of finance and technology, and analyze them to achieve the regulation and guidance at the institutional level.

With the increasing use of FinTech in the financial-services industry, rules of the financial-services industry have been changed by the technological innovations. At the same time, risks have accompanied this, and the forms of risk and the way customers are perceived have also changed. The financial-services industry is facing the most profound and ambitious technological innovations since the birth of modern financial institutions and financial markets. The technological development of continuous iterations such as big data, artificial intelligence, and blockchain has even begun to fundamentally change the current business model and regulatory framework.Footnote ²⁰ Of course, while FinTech promotes China’s financial innovation and broadens financial services, it also leads to an increase in potential risks, and FinTech supervision faces challenges.

On a broader perspective, the Chinese regulatory objective of “macro-prudential supervision” focuses on systemic risks, and this objective is one of the greatest values that the global financial crisis has brought. But FinTech firms are also likely to become new systemically important actors, which will undoubtedly lead to an increase in systemic risks. At the same time, the use of innovative means may also enhance the procyclicality of financial markets.Footnote ²¹ Through the powerful information system, the original interconnections in the market will be highly enhanced, and new interconnections will be created, thus increasing the possibility of “cross-infection” in the financial marker. This problem will become more and more serious with the popularity of artificial intelligence. In the process of automation, manual supervision may be reduced, and the experience of financial crisis has already told us that the “standardization” audit is not a guarantee of compliance, and it is impossible to eliminate the hidden systemic risks. Based on this scenario, “macro-prudential supervision” should take into consideration the above risks that FinTech may bring.

The business innovation of some Internet institutions deviates from the track, deviates from the positioning of information intermediary and the nature of services to SMEs and relying on Internet operations, and is alienated into credit intermediaries. There are acts such as illegal lending, establishment of fund pools, and large-scale offline marketing. Risks have occurred from time to time. Some Internet institutions even use self-integration, Ponzi schemes, counterfeit fundraising, and even financial fraud.Footnote ²² Effectively understanding the potential risks in the development of FinTech is an inevitable requirement for promoting China’s FinTech regulatory reform.

2.3 Call for FinTech Regulation

FinTech presents challenges such as cybersecurity-related risks, and also presents opportunities for regulatory compliance and supervision.Footnote ³⁵ The rapid development of FinTech calls for urgent effective legal supervision. In China, the term “technology” is more vague than the concept of finance. The form of digital currency is difficult to understand for individual investors. Some firms use this kind of information asymmetry, carry out market-value management with hot spots, deliberately confuse virtual digital-currency issuance and blockchain, and seriously mislead investors. In addition, the growth of virtual digital-currency market value, active currency-exchange transactions, and the prevalence of forks have further exacerbated market turmoil. FinTech in a broad sense can be considered as a FinTech business as long as it is involved in the use of program code. From an academic perspective, this is clearly not a scientific definition, but online users do not usually have professional identification capabilities. The drawback is that, after 2016, some FinTech firms suddenly emerged in the market and, under the pressure of policy tightening on Internet finance, many firms began to advertise their own FinTech concepts for survival and marketing needs. Therefore, there are certain hidden risks in the course of the development of China’s FinTech industry.

The rise of FinTech raises concerns about FinTech’s effect on the stability of the financial sector. These concerns are closely connected with the structure of the FinTech industry and the ways in which FinTech firms operate, as well as the particular innovation that FinTech is introducing to the market.Footnote ³⁶ Based on such circumstances, we should pay attention to and foster the development of FinTech firms with the most open attitude, but we should sort out the development of the industry with the most prudential standards, and provide substantial support and assistance. Under the market-economy environment, only FinTech firms recognized by the market may play a positive role in the future development of the industry. The mark recognized by the market is the production of technology revenue.

With the cross-border, cross-industry, and cross-market characteristics of blockchain technology, the speed of the financial mixed industry is accelerating and the difficulty of supervision is increasing. The limitations of separate supervision and institutional supervision have gradually emerged, and the shortcomings have been highlighted in the time of the rapid development of FinTech. The participants in the FinTech market are growing rapidly and the types of business are mixed. However, due to various technical reasons, the related business supervision is far behind.

With the mutual penetration and dual integration of technology and finance, the financial market driven by FinTech is advancing rapidly. The traditional regulatory model has been unable to adapt to such a market environment. The path of FinTech supervision has its rationality. In such circumstances, it is time to call for FinTech regulation.

3.1 New Legal Framework of FinTech Regulation

Before 2015, due to the burgeoning period of China’s FinTech, the regulatory authorities adopted an inclusive and loose regulatory policy, showing a weak supervision attitude. At this stage, various financial forms are still unclear, and the regulatory authorities only control relatively mature areas such as electronic payment and Internet lending. At this time, the Internet-finance industry developed rapidly but, because of the lack of a strong restraint mechanism and effective supervision, it also showed a situation of brutal growth and extensive development. However, there are legitimate reasons for regulators to adopt a tolerant attitude toward the Internet-finance industry at the initial stage.

The law always has a lag. First, there was no proper regulatory framework on FinTech. Although the update of laws and regulations in the financial sector has been considered timely enough, the comprehensive and continuous supervision of the emerging financial innovations still makes the regulatory authorities unable to do so. Second, Internet finance is still in the early stage of exploration. It is difficult for the regulatory authorities to grasp the direction of supervision. It is better to wait and see.Footnote ³⁹ Finally, the new financial format is always accompanied by new types of technical means and business models. Even for existing regulations, there was no proper “enforcement” from the regulators. Before 2015, China adopted basically an inclusive and loose regulatory policy for FinTech. Such a scenario indicated both facts: there was a “gap” of legislation and regulation on FinTech, and also the government authorities’ attitude towards these new financial innovations by refraining from enforcing the laws.

In 2015, FinTech in China began to emerge. In view of the chaos of Internet finance, the regulatory authorities should shift the tolerant regulatory policies and adopt a strict regulatory attitude. Taking cash loans as an example, after 2015, the online lending industry showed explosive growth in terms of both business scale and number of institutions, but with the emergence of money running, financial fraud, illegal fundraising, violent levy, and so on. The tragedy caused by “campus loan” and “naked loan” is even more common. As a result, the regulatory authorities have issued a series of legal rules and self-regulation rules.

With the increasing risks of Internet finance, frequent violations, and even large-scale bankruptcies, escape, and fraud of the originators, the regulatory authorities have issued rules and regulations specifically for the rectification of Internet finance.

FinTech in this context is regulated by a set of laws, regulations, and rules. In July 2015, the People’s Bank of China, the China Banking Regulatory Commission, the China Insurance Regulatory Commission, the China Securities Regulatory Commission, and ten other ministries and Commissions jointly issued the “Guidelines on the Promotion of the Healthy Development of Internet Finance,”Footnote ⁴⁰ and established the basic framework for principled supervision.

However, the overly broad regulations failed to solve the problem in time, and the above-mentioned chaos even appeared to deteriorate. Therefore, the regulatory authorities increased the special regulation of Internet finance. In particular, the General Office of the State Council issued the Implementation Plan for Special Remediation of Internet Financial Risks on 13 October 2015.

Subsequently, the People’s Bank of China and other regulatory agencies followed up to issue special implementation plans for their respective fields of responsibility. There was a “Regulatory Storm” in the field of Internet finance, and the movement regulation model in the Internet-finance field was begun. At the same time, the “financial-stability” goal of financial regulation is particularly noteworthy. On 28 December 2015, the People’s Bank of China promulgated the Management Measures for Network Payment Services of Non-bank Payment Institutions,Footnote ⁴¹ which clarified the positioning of Internet-payment institutions.

On 13 April 2016, the China Banking Regulatory Commission issued the P2P Network Lending Risk Special Rehabilitation Work Implementation Plan.Footnote ⁴²

On 24 August 2016, the China Banking Regulatory Commission and other four ministries and Commissions issued the Interim Measures for the Management of Business Activities of Internet Lending Information Intermediaries,Footnote ⁴³ which made the P2P network lending a basic law.

On 13 October 2016, the State Council issued the Implementation Plan for Special Remediation of Internet Financial Risks.Footnote ⁴⁴ The China Banking Regulatory Commission, the China Securities Regulatory Commission, the China Insurance Regulatory Commission, and the State Administration for Industry and Commerce also issued corresponding specific remediation plans. On that issue, it seems that China’s Internet Finance Guidelines and the consultation on third-party payment are pointing towards a two-tiered market. It may introduce a measure of regulatory harmony between traditional financial institutions and new start-up participants.Footnote ⁴⁵

On 25 April 2017, for the first time, China referred to “maintaining financial security” as part of State Governance. Since then, “preventing and defusing financial risks” has repeatedly appeared in the speeches of senior government officials. The central bank and the regulatory committee have repeatedly released the signal of financial stability.Footnote ⁴⁶ Although China’s FinTech market has been booming, supervision is still at the stage of exploration, especially under the goal of “financial stability,” and how to promote financial innovation is an important problem to test China’s financial regulators. By examining the laws and reforms in Europe and the US, there is a unique opportunity in the technologically driven financial transition currently underway in China.Footnote ⁴⁷ In addition to learning from regulatory mistakes in other countries, China could leapfrog financial regulation models by establishing a regulatory framework that promotes and controls the use of FinTech and Internet-finance companies.Footnote ⁴⁸

In May 2017, the People’s Bank of China Financial Technology Committee (“FinTech Committee”) was set up. The FinTech Committee mentioned explicitly strengthening FinTech research with blockchain technology as the core, strengthening the application of regulatory technology (“RegTech”), and aiming to strengthen the research planning and overall co-ordination of FinTech innovation. The active use of big data, artificial intelligence, cloud computing, and other technologies should be encouraged for enriching financial -supervision methods, improving the ability to identify, prevent, and resolve cross-industry and cross-market financial risks, and effectively strengthen the application of regulatory technology. Relevant regulatory authorities, such as the Bank of China, China Banking and Insurance Supervision Commission, have also continued to conduct research in the field of FinTech and regulation, and explore the use of big data and cloud technology to improve regulatory efficiency.

In May 2017, the People’s Bank of China led the joint publication of the Financial Services Industry Standardization Structure Construction and Development Plan (2016–2020),Footnote ⁴⁹ which plans to build financial products and services, financial infrastructure, financial statistics, financial supervision, and risk-prevention and control standards. The People’s Bank of China also released the 13th Five-Year Development Plan for China’s Financial Services Industry Information Technology in June 2017,Footnote ⁵⁰ which clarified the development goals of RegTech, required the establishment of a FinTech-innovation-management mechanism, and formulated relevant specific regulations, upgrading regulatory platforms and tools to fully utilize technology to improve regulatory quality and reduce costs.

In addition, the Shanghai Banking Regulatory Bureau has created a regulatory innovation interactive platform in the free-trade zone. In principle, it is similar to the regulatory sandbox adopted by the UKFootnote ⁵¹ and it is a pioneering pilot exploration in the free-trade zone. However, there is still a problem: the platform cannot put all FinTech firms in, because many FinTech firms are not under the control of the banking regulatory bureau, and the banking regulatory bureau does not have the power for administration of market access and licences in this regard.

3.2 Institutional Reform of Regulators

In recent years, in the field of financial regulation, the arrangement of the regulator system has undergone tremendous changes. The Chinese Fifth National Financial Work Conference, held in July 2017,Footnote ⁵² set the policy for future financial institutional reforms and direction. Three tasks were highlighted in the meeting, including making the financial sector better serve the real economy, containing financial risks, and deepening financial reforms.Footnote ⁵³ At the same time, the report of the conference clearly stated that the supervision mode was shifted to “functional supervision and behavior supervision,” which means that the previous mode of “separate operation and separate supervision” will be replaced.Footnote ⁵⁴

This conference set up the Financial Stability and Development Committee (“FSDC”) of the State Council, charged mainly with strengthening the macro-prudential management and systemic risk prevention of the People’s Bank of China, and strengthening the supervision function of financial regulatory authorities, and ensuring financial stability. The office of the FSDC is located within the People’s Bank of China, but it is directly under the leadership of the State Council.

China’s FinTech supervision was upgraded to a new regulatory model consisting of one committee, one bank, and two Commissions.Footnote ⁵⁵ The status of the FSDC is expressed as the deliberation and co-ordination institution of the State Council. The establishment of the FSDC was charged with co-ordinating macro-prudential supervision and promoting the deepening reform of the financial industry. The FSDC is responsible for co-ordinating the People’s Bank of China, the China Banking Regulatory Commission, the China Insurance Regulatory Commission, the China Securities Regulatory Commission, the Foreign Exchange Bureau, the Development and Reform Commission, and the Ministry of Finance.

The People’s Bank of China has been assigned with two roles in future financial supervision. One is to make up for the regulatory gaps that have occurred in the past and the other is to strengthen the formulation of financial rules.Footnote ⁵⁶ The People’s Bank of China will play a more important role in the new financial regulatory framework.

By March 2018, the Plan for Organizational Reform of the State Council was approved, and the China Banking Regulatory Commission and the China Insurance Regulatory Commission were integrated into the China Banking and Insurance Regulatory Commission, charged for drafting important laws and regulations for banking and insurance industries, as well as for drafting regimes of prudential supervision.Footnote ⁵⁷ On 8 April 2018, the China Banking and Insurance Regulatory Commission was officially set up. The merger of the China Banking Regulatory Commission and the China Insurance Regulatory Commission will also help the reform direction of target supervision.

Through the above steps, China’s institutional supervision mode has gradually been replaced by the functional supervision mode. Overall, the establishment of the Financial Stability Development Committee is of positive significance under the current financial regulatory framework. In the future, it should be able to guide the FinTech company’s mixed business model involving multiple regulatory authorities or regulatory authorities. From the perspective of positioning, the current responsibility of the Financial Science and Technology Committee focuses on the study of FinTech and focuses on the regulatory function, while the Financial Stability Development Committee is based on the structure of “one bank and two Commissions” for purpose of carrying out co-ordinated supervision of the FinTech. The next step of reform is to introduce the regulatory sandbox mentioned in the previous sections. The principles of the guidelines announced by European Supervisory Authorities could be used to help China to launch the regime of a regulatory sandbox, based on the experiences introduced by the UK’s Financial Conduct Authority (FCA)’s Global Financial Innovation Network.Footnote ⁵⁸

3.3 Risks for the Policy-Makers to Manage

Financial regulatory policies have a lag, and their emergence often occurs after innovative services. With the innovation of the financial-service model, financial supervision should also be constantly adjusted. China’s Internet finance has the characteristics of a “cross-border mixed industry” and is “technically intensive.” It is based on the above characteristics that financial services have been innovated in different forms, and the resulting risk spillover has brought many difficulties to financial supervision. Risks for the policy-makers to manage or eliminate are embodied among the following dilemmas.

3.4 Inadequacy of the Existing Legal Framework to Respond to Two-Dimensional Risks

Regulation in China has failed to adequately take into account the rise of FinTech firms and the fundamental changes they have ushered in on a variety of fronts, from the way that banking works, to the way that capital is raised, even to the very form of the peer-to-peer-lending area.

The above explanation and analysis show that the existing legal framework in China does not obviously respond to two-dimensional risks adequately. Such risks call for a reconsideration of financial regulation by a policy option for improving the legal framework of FinTech regulatory regimes in China.

3.5 Regulatory Objective: FinTech Innovation, Risk Prevention, and Financial Stability

The function of the FinTech regulatory regime is facilitating mechanisms that help societies to cope with drivers of socioeconomic transformation, such as FinTech. Such mechanisms emerge from the operation of a FinTech regulatory regime and particularly from its interaction with financial rules and business practices. They provide scope for alleviating the dislocating effects of FinTech and mediating the opportunity-creating and protective functions of regulation.Footnote ⁵⁹ Such mediation can result from the opportunities for financial regulators to take consideration of regulatory objectives in developing regulatory or business solutions that respond to different public-interest concerns.

A FinTech regulatory regime can be structured in many ways, depending on the regulatory objectives of the regulators. Policy considerations for FinTech require a balance in regulatory objectives between FinTech innovation, risk prevention, and financial stability.Footnote ⁶⁰

The FinTech regulation could perform an objective of prudential regulation, focusing on risks prevention and financial stability. Regulatory authorities are charged with monitoring the underlying risks of fraud and actor’s abuse. FinTech firms and start-ups will try to comply with reasonable guidelines particularly if the goal of risk prevention is readily apparent or clearly articulated.Footnote ⁶¹ For enforcement of the regulatory laws and rules, the State Council in China has set up an FSDC committee to implement the market regulation and the policy objectives of risk prevention and financial stability. Along with the reform based on functional supervision, the People’s Bank of China and financial regulatory authorities participate in the regulatory investigation of the financial industry.

The FinTech regulation could also perform an objective of promoting FinTech by supporting technological innovation. Regulatory authorities could foster the development of the FinTech sector by implementing regulatory sandboxes or similar practice.Footnote ⁶² FinTech promotion can be driven by increasing market competition, or achieving greater levels of financial inclusion.Footnote ⁶³ Whenever FinTech promotion is considered as the underlying regulatory objective, regulators need to carefully consider whether FinTech businesses might require some form of preferential treatment to make new products and solutions more attractive, at least to a certain extent.Footnote ⁶⁴

4.1 Implementing Effective Regulatory Policy

An effective regulatory policy could reduce systemic risk. Future crises are unpredictable. The main point is that regulatory policy can become a valuable ally for financial stability in the FinTech era. Neglecting regulatory policy can lead to missed opportunities to reduce familiar risks in the short term and may create new threats in the long run. It is important to understand the stakes, focusing on the opportunities and challenges presented by FinTech and helping to develop the stakes of effective regulatory policies, because policy-makers and regulators can contribute to regulatory shortcomings in a variety of ways.

The policy-makers must decide how to allocate limited resources among different regulatory goals, and must consider the possibility that pursuing one mission will undermine others. The point here is not that regulation should win out over other major financial regulatory goals that currently receive greater attention, such as FinTech innovation and risk prevention. Regulatory policy is important not only in its own right for the laws and rules, but also for how it can advance FinTech innovation and risk prevention.

Independent FinTech has created its own threat to financial stability. Over time, an independent FinTech could become so giant and interconnected that its failure could undermine the effectiveness of the legal and regulatory regime. A concentrated FinTech market could create additional risks from co-ordinated large-scale financial movements or systemically important FinTech institutions.Footnote ⁶⁵

4.2 Integrating Technology into Financial Regulation

The implementation of intelligent dynamic supervision relies on the coding of financial regulatory rules or the identification of machines—that is, automated supervision through code. Blockchain technology enables the rapid expansion of the “structural” role of code, hardware, and other constrained behaviours, at least redefining the design, implementation, and enforcement of legal and regulatory rules. Decentralized technologies (such as blockchain technology) can be used for technology-driven financial regulation, while technology-driven rules can be viewed as technological law for FinTech participants and legislative authorities.Footnote ⁶⁶ In this model, regulators play a dual role: formulating laws and regulations; and working with technical experts to embed laws and regulations in decentralized technology and gain full network recognition, so that the implementation of laws and regulations can be achieved through code.Footnote ⁶⁷

Automated supervision through code creates data and protocol-based solutions that include risk data, transaction data, and process data. The agreement is simply a digitalization of regulatory requirements, regulatory policies, and compliance requirements. The main advantage brought by digitalization, which is a type of innovation,Footnote ⁶⁸ is that it does not require offline manual intervention, reduces the problems caused by discretion, and can establish a unified implementation standard. Both financial institutions and regulatory agencies adopt automated procedures to deal with them, greatly reducing costs and improving efficiency and reducing moral hazard. Regulators can provide regulatory documents and other documents in machine-readable form, which obviously makes it easier to synchronize regulatory dynamics. The legislator’s modification of the current rules is recorded and stored in the form of data. This form of data can be directly processed by the financial enterprise, which in turn can automatically modify its internal settings, automatically update the rules and regulations, and report mechanisms.

It is important to note that, because writing code requires specific expertise, without the co-operation of experts in the decentralized technology ecosystem, regulators will not be able to draft rules that allow the machine to be identified. Only high-frequency co-operation and mutual response between the drafters of the law and the writers of the code can ultimately lead to strict and valuable regulatory rules. In addition, in the process of co-operation between regulators and the FinTech industry, it is inevitable to discuss the functional objectives of the current regulation. How to embed these goals in a code-supported system and make them function equally is very important.

For the automation system, trusted algorithm constraints and execution are more conducive to enhancing people’s trust in the system than the design code of the mandatory disclosure system. In the past 20 years, many scholars have called for greater transparency in automated procedures, but this approach is not a panacea. The most representative method is to disclose the source code of the system, but this is only a small step in ensuring the reliability of the automation program because non-experts cannot understand the source code of a computer system. Even an expert can hardly figure out what the software code execution will produce: checking the source code has a limited effect on predicting how the computer program will run.

The typical representative of emerging automation decisions is machine learning, especially for source-code analysis. Because it automates the decision-making rules based on the specific data being analyzed, no one can predict a specific process. In this case, the source code has little effect on the reviewer because the code only indicates the machine learning method used and not the data-driven decision rule. To take a step back, even if the open source code is feasible, it is not possible to open it in many cases, especially when it comes to consumer data protection, commercial proprietary information, and trading secrets. However, the development of technology has provided a new opportunity to improve governance and enhance reliability through the set-up of computer programs, which can make automation decisions more in line with legal and policy objectives.Footnote ⁶⁹

4.3 Moving toward Goals-Oriented Regulation

While the considerations underlying the conventional wisdom remain important, clear and specific laws may not be possible when technology is changing rapidly and when its application provides full flexibility to evade narrowly drawn, bright-line rules. Faced with a concern over legal obsolescence given the speed of change and technologically enabled evasion of legal standards, a turn to more purposive, goals-oriented legislation may be effective. It is necessary to appraise legal, governance, and scalability issues, and support effective efforts of FinTech.Footnote ⁷⁰

A potential approach would be to orient regulations explicitly toward goals or purposes in regulations,Footnote ⁷¹ so the rules can remain applicable. Along these same lines, goal-oriented laws and rules could expressly require that FinTech firms and start-ups put into place internal procedures to address major policy concerns that their business models raise—in other words, could require companies to invest in compliance. Required compliance policies might include mandatory consideration of the discriminatory impact of technologies or of security risks with respect to personally identifiable information.Footnote ⁷²