Financial technology (FinTech) has been one of the hottest technology areas for several years. It has attracted much attention in Poland as well, particularly due to the successes to date of local FinTech start-ups.
This topic picked up additional steam when a financial innovation working group was appointed at the Polish Financial Supervision Authority (KNF), and then the FinTech Department was opened at the KNF Office. With its Innovation Hub programme, the department has contributed to creation of a positive atmosphere around FinTech in Poland.
But the confidence in the success of FinTech in Poland is only partially deserved. Undoubtedly the level of technological development of the market is very high in the payment services sector. But other important fields of FinTech don’t necessarily match the area of payments. This applies for example to exploitation of cloud computing technologies on the Polish financial market, as mentioned by KNF chairman Jacek Jastrzębski at the recent Banking Law and Financial Technology Congress.
Another element is the capital market, which in Poland is rarely mentioned in the context of FinTech. But this is a key area from the perspective of the Polish economy, as it is responsible for one of the main routes for financing commercial ventures. A weak and non-innovative capital market will not satisfy the significant capital needs of the Polish economy.
So it is a good thing that the Polish Capital Markets Strategy (SRRK) has been drafted. The strategy was financed with funding from the European Commission and developed in cooperation with the European Bank for Reconstruction and Development. Implementation of the plan is projected for 2019–2023. The main aim of the strategy is to improve access to financing for Polish businesses.
One of the points of departure for SRRK is a list of barriers identified by capital market entities. One of them is “outdated technologies or a shortage of technologies in key market segments, including inadequate investment in FinTech solutions.” The draft strategy indicates 60 measures that should be taken to overcome these barriers. Some of them are tied to financial technology.
- Trust in the capital market. The draft SRRK stresses reinforcement of confidence in the capital market—society’s trust in capital market entities, market participants’ trust in public institutions such as the supervisory authority (e.g. the predictability of its actions), and the trust in digital solutions on the part of users of financial services. Building confidence in the market, enshrined as one of the guiding principles of the strategy, is essential from the perspective of FinTech. Innovation and change are inherent features of new technologies, and their successful and safe adoption requires not only an appropriate formal framework (institutional and regulatory), but perhaps most of all mutual trust between financial institutions, their clients, and public authorities.
- Stability and predictability of regulations. This aim speaks for itself. Legal uncertainty traditionally constitutes one of the main barriers to technological growth on closely regulated financial markets. A specific example of initiatives in this direction is the call to avoid gold-plating, i.e. national expansion of standards adopted at the EU level. This is particularly important for FinTech startups planning to base their new products on EU regulations, when implementation in Poland carries the risk of adding an additional layer of regulations.
- Transparent and proportionate actions by the watchdog. Building confidence in the capital market will be encouraged by ensuring transparency and proportionality in the actions of KNF, which is also consistent with the previous point. The SRRK draft includes a simple but crucial demand for public presentation by KNF of its positions through regularly published guidelines or FAQ. Another proposal is to reflect in supervisory practice the differences in character, scale and aims of the business conducted by participants in different segments of the market, which could be particularly meaningful for FinTech startups just joining the market.
- Other changes at KNF. The draft strategy proposes concrete changes in the operation of KNF, which could be particularly helpful when launching innovative financial services and products, such as:
- Drafting, publishing and applying templates for documents (including templates for prospectuses and other informational documents), with the aim of establishing standardised, automated issue processes
- Specifying deadlines for analysis of documents
- Adoption of modern methods of electronic communications, e.g. using tracked changes in editable documents
- Issuing written guidelines to ensure legal stability and certainty
- In the case of foreign entities, use of English, also in formal legal documents such as prospectuses.
- Introduction of a regulatory sandbox. The draft SRRK devotes considerable attention to the issue of a regulatory sandbox, which is a leading demand by the FinTech community in Poland. The document mentions adapting the licensing process to suit FinTech companies, and smooth cooperation between KNF and users of the sandbox (for example, the KNF Office could assign a liaison to work with each user). It should be mentioned that these demands are to some extent being realised under the Innovation Hub programme of the KNF Office, mentioned above, while the idea of launching a regulatory sandbox has been included in KNF’s plans for several months. The draft strategy also calls for expansion of the right to seek an interpretation from KNF.
- Increasing expenditures on innovation. The draft correctly points out that competition with the most highly developed economies requires appropriate outlays on innovation. The authors of the strategy take the view that this should be accompanied by appropriate legal, tax, and educational frameworks.
- Introduction of a legal framework for distributed ledger technology (blockchain/DLT) and cryptographic assets. The draft SRRK encourages public institutions to use blockchain/DLT on the capital market, which is justified among other things by the anticipated consolidation of the positioning of cryptographic assets such as securities in the EU. The draft strategy includes an interesting call to launch a pilot programme to assess solutions with respect to securities of private companies, which is already happening via initiatives carried out by the Warsaw Stock Exchange. SRRK also refers to the need to license entities maintaining DLT infrastructure on the capital market (such as banks and investment firms). We will report further on blockchain in the draft strategy in a separate article.
- Creation of a framework for proper functioning of tech companies and SMEs. This category includes a proposal to assess the potential of a three-level structure of the market (main market, SME market, and startup market), creation of a new type of company for startups (the simple stock company), regulating the operation of crowdfunding platforms, and the FinTech accelerator at the Warsaw Stock Exchange.
- FinTech in the Financial Market Development Council. Innovation and FinTech are mentioned as examples of fields for topical working groups within the Financial Market Development Council (RRRF).
Numerous comments have been raised on the draft SRRK, some of which relate to FinTech. We are currently anticipating release of the next draft of the strategy, but we already know that FinTech will play an important part in the document, and many concrete initiatives have already been proposed.