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Fintech Legal Outlook 2023

Fintech Legal Outlook 2023

In this guide, we look forward to 2023 and summarise key legal and regulatory developments we expect to see in the fintech space. Our review covers the full breadth of the fintech legal spectrum and looks across 19 jurisdictions in Asia, the EU, Latin America, the UK and U.S.

Visit our dedicated Fintech page to find out more about our solutions-driven advice, and to access our other Fintech resources: thought leadership, podcasts, videos and our FintechLinks blog, which provides fintech-focused news and updates from around the world.

Watch the video to the right to see various members of our global team giving a series of one minute summaries of the global, Asia, EU, UK and U.S. fintech outlooks for 2023.

Download your copy of the full guide covering key fintech trends across 19 jurisdictions.

Use the interactive map below to click through each jurisdiction, and scroll down to explore our 7 high-level global trends.


Tech Legal Outlook front cover

Explore the key milestones in your jurisdiction by selecting a map pin. Unselect the map pin to return to the summary.

7 Fintech Trends for 2023

Explore our 7 key global trends for the year to come

Macro market headwinds impact the sector

The fintech sector has not escaped the impact of the deteriorating global macroeconomic environment of 2022. Valuations have declined, access to capital markets has become more limited and pressure on margins and profitability has increased. The sector is also being impacted by the overhang of the “Crypto Winter” of 2022 – involving a significant crypto market crash and the collapse of several high profile stablecoins and crypto exchanges – which looks set to continue well into 2023.

Nevertheless, 2022 was still the second highest ever year for tech and fintech investment generally, and in 2023 we expect some fintech M&A and market consolidation. Fintechs that are continuing to invest in fast-paced growth and expansion will be looking for access to capital. Market conditions are creating increased interest in private placements, although well-established fintechs will still have a longer-term focus on IPO opportunities, including the ongoing debate over preferred listing venues.

Whilst crypto markets have been hit hard, there is still plenty of interest in the digital assets space from established financial institutions and other corporates who are increasingly accessing fintech ideas and technology via strategic investments, collaborations and partnerships. In particular, many high-profile players are partnering with tech companies to diversify their offering into digital products, including NFTs.

Read more in our Tech Legal Outlook 2023

The Crypto Winter leading to increased regulatory activism globally

Heading into 2023, the ongoing bear market in cryptoassets and fallout from high profile collapses, is generally expected to lead to significantly increased regulatory activism, both in terms of enforcement and developing regulation. As a global trend we are seeing regulators focus on investor/ consumer protection which is also reflected in the mood of the enforcement. The Crypto Winter has unsurprisingly triggered an uptick in regulatory investigations and enforcement in cryptoassets, where regulators are relying on existing frameworks to try and deliver redress.

Market events will likely also focus more interest on the Financial Stability Board’s (FSB) recent suggestion to separate structurally exchanges from other crypto services, or at least use regulation to focus on crypto platforms to improve how they manage conflicts of interests and appropriately segregate and secure customer assets. The FSB has also suggested that certain algorithmic stablecoins should not be allowed because stabilisation mechanisms are insufficient.

Targeted prudential regulation is also coming down the line: the Basel Committee on Banking Supervision is aiming to finalise its framework for exposures to cryptoassets by the end of the year. Although termed by reference to cryptoassets, the proposals are more far-reaching into regulated digital assets and may have a significant impact on the economic viability of a wide range of digital asset arrangements/ deployments of distributed ledger technology (DLT) for banks and potentially other prudentially regulated firms.

...and galvanising efforts for bespoke regulation for cryptoassets

The turbulence in crypto markets bolsters the argument for greater regulation of cryptoassets and cryptoasset businesses and is focusing regulatory attention on how to deliver new/ bespoke regulation for cryptoassets. It also highlights the issues which need to be addressed in order to avoid future crisis events. The collapse of major exchanges and significant losses of customer assets underlines the potential value of setting standards on governance, asset segregation, record keeping and transparency.

The EU is leading the charge on bespoke regulation with its Markets in Crypto Assets Regulation (MiCAR). The U.S. has plenty of proposals in the pipeline that are struggling to get off the ground whilst regulators are grappling for authority in the crypto space. In Singapore there is unlikely to be the sort of ban on retail trading in crypto as we have seen in Mainland China but we can expect a clampdown on trading in investor protection measures. This shift in approach could be driving interest to the UAE, but that has its own existing and developing regulatory framework for market participants to navigate. In Hong Kong, relaxation is coming with more of an open attitude to retail crypto. Meanwhile the UK is addressing digital assets in a piecemeal fashion starting with financial promotions and stablecoins and a consultation on wider cryptoasset regulation to follow in 2023.

New forms of digital assets emerging as digital financial and payments infrastructure develops

Technological and use case developments are leading to new regulated offerings from established financial institutions. These include digital securities, tokenised assets, digital asset derivatives, digital collateral management and prime brokerage, and related digital financial infrastructures, as well as the digitisation of trade finance. Developments in this space are also expected with respect to digital identity and an increased focus on the effective custody of digital assets. We are also seeing tech offerings and fintechs targeting the regulated sector. The turbulence in the crypto sector has also resulted in some unregulated offerings, in effect voluntarily submitting to a regulated standard pending further regulatory developments.

In 2023 we will start to see the fruits of technological development in the infrastructure for digital securities and payments. For digital securities and securities settlement, we will see DLT-focused regulatory sandboxes in the EU under the DLT pilot regime and in the UK. For retail payments, alternatives to card schemes will continue to gain traction, such as account-to-account payments, including mobile payments. Exploration will move to early-phase development for many CBDC projects. Financial institutions will be interested in following the detail in the different models that are being taken forward by central banks and the role they might have to play in any future roll-out, for example, in relation to intermediation or overlay services. Privacy concerns will remain a contentious aspect of any CBDC designed to be available to the general public.

Regulation will continue to be used to direct innovation and foster competition in the payments sector. But many regulators will also take a more interventionist approach to their supervision of payments networks. For example, businesses involved in cross-border payment services can continue to expect questions about how they meet local safeguarding standards.

Increasing financial crime impacting DeFi and crypto

The inherent vulnerabilities of DeFi structures (based on typically open source DLT code, which is transparent, but can be exploited) has also been exposed through a number of high-profile tech failures and hacks resulting in thefts of billions of U.S. dollars’ worth of crypto from several high profile DeFi platforms. The developing DeFi industry will have to work hard to restore customer trust and attract investment in 2023.
Financial crime has been identified as one of the biggest challenges for financial services and fraud and theft are also generally rife in crypto, a trend which is likely to continue as criminals seek to exploit lack of consumer knowledge and safeguards as well as tech vulnerabilities. The potential impacts are broad – extending well beyond regulatory enforcement and monetary losses, to less quantifiable but nonetheless serious factors, such as damage to business relationships and employee morale.

Even where there is no statutory or regulatory route that allows for consumers and professional crypto investors to be compensated for their losses, there may be the possibility of pursuing private litigation. With crypto having become much more mainstream and litigation being fuelled by the availability of litigation funding in instances where defendants with deep pockets exist, we expect to see much more in the way of civil suits in the crypto space.

Developing regulation in the digital economy increasing the compliance challenge

Beyond financial and crypto-specific regulation, the compliance matrix is generally getting more and more complicated for firms operating in the digital economy, as digital-focused regulation comes online and overlays existing regimes.

We expect to see antitrust authorities continuing to push the boundaries of established competition law and enforcement in the digital economy through M&A investigations, market studies, investigations, and regulation. The EU’s Digital Markets Act is now in force and its rules against gatekeepers will start to apply from May 2023. Next year will also see antitrust authorities implement and apply new tools designed to allow them to better support consumers in hard times: consumer protection powers are likely to touch digital markets, potentially including fintech.

New and increasingly built-out data regimes in Asia, notably in China, and further state-level adoption of data protection regimes in the U.S. will deepen the compliance challenges in 2023, together with developments in cross-border data transfers. New rules on digital services and digital operational resilience will also be coming into force in the EU, meaning regulators will take a much closer look at data, IT infrastructure, platforms and cybersecurity.

Meanwhile approaches to regulating AI differ between East and West and between the EU, UK and U.S. The EU’s AI Act and companion AI Liability Directive will be negotiated during the course of 2023 but expect the scope and compliance requirements for “high risk” AI systems to be heavily debated. Thus far, no other region is taking the same cross-sectoral risk-based approach to AI regulation, but that could change in 2023.

Read more in our EU Digital Handbook and Competition regulation in digital markets: 5 Themes in 5 Minutes.

ESG in fintech - a problem and a solution

The global energy crisis, alongside major international events like COP27, have maintained focus on the role of technology in ESG initiatives. They have also focused attention on the energy-intensive nature of crypto mining and “proof of work” blockchains (although this may be resolved in part from the Ethereum Merge and transition to the less intensive “proof of stake” model). Such has been the focus on the energy-intensive nature of blockchain that both the EU and the U.S. are mulling over the potential for a ban on proof of work crypto mining.

However, fintech also has a positive role to play in ESG initiatives, for example in respect of carbon credit trading platforms established by financial instructions, which leverage fintech products and technology to achieve ESG-driven outcomes.

In particular we are seeing distributed ledger technology put to use here as it provides traceability, and the ability to allocate funds to particular outcomes by programming that money in accordance with certain criteria. Auditors and/or automated reporting via the IoT can then verify that activities meet the relevant ESG requirements, and this evidence can then be presented “on chain”, helping to mitigate concerns around the increasing risk of greenwashing. We expect to see other voluntary carbon trading schemes develop in Asia, particularly in Singapore and Hong Kong.

Read more on this topic on our SustainableFutures blog.


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Tech Legal Outlook 2023

Read our complementary report exploring the key global trends in the technology sector that we believe will shape the legal outlook for businesses in 2023 and beyond.


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