Fintech Global

Year in Review 2020 and Year to Come 2021

Fintech Global Year in Review 2020 and Year to Come 2021

As part of Linklaters’ “Year in Review, Year to Come” series, our global fintech team has published its Fintech Year in Review and Year to Come publication.

In this, we have summarised key legal and regulatory developments in the fintech space in 2020 and looking forward to 2021. Our review covers the full breadth of the fintech legal spectrum and addresses global, EU and country specific developments for 16 jurisdictions.

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

7 Fintech Predictions for 2021

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We have also identified 7 key predictions for the year to come.

The uneven fallout from Covid-19

The pandemic has accelerated digitalisation in some areas and exposed the need for it in others. Legacy systems and manual processes will be put under huge pressure to keep up and Covid-19 “fixes” and “workarounds” will be adapted and become BAU. The economic impact of the crisis will also drive both market and regulatory activity. For example, financial distress may fuel M&A in a sector that is ripe for consolidation, and insolvencies of non-bank financial service providers may test the adequacy of existing consumer protections in this area.

Alternative payment models to battle it out but consumers will have final say

As regulators continue to promote a diverse payments landscape, a variety of payment models will be left to co-exist competitively with one another. In some areas, dominant payment systems may face increasing pressure from upcoming alternatives, such as digital wallet systems, interbank instant payment rails and so-called stablecoins. Meanwhile, BigTech will continue to leverage their customer franchise to win market share. Ultimately consumer behaviour is likely, as ever, to drive change.

More R&D on CBDCs but few (if any) given the green light

Whilst mainland China has launched a pilot phase of its retail central bank digital currency, most central banks are continuing to consider the viability and desirability/necessity of issuing one. Research and development work is likely to accelerate next year, though decisions as to issuance will likely take more time. Meanwhile, some jurisdictions are investigating options for interbank CBDCs, which could progress more quickly.

Regulatory frameworks race to catch up with innovation

New technologies, including distributed ledger technology and artificial intelligence, continue to prompt questions as to the application and suitability of existing financial regulation. New business models and the entry of BigTech into the financial sector have also raised questions as to the adequacy of current frameworks. As regulators across the globe grapple to uphold the principle of “same activity, same risks, same rules”, we are likely to see more clarifications and amendments to regulation.

There’s more to come on DeFi and CeFi

The growth of DeFi was a headline of 2020. Whilst regulatory initiatives in Europe have raised questions as to its future, we expect the market to continue to develop over the next year. At the same time, the use of distributed ledger and other technologies in centralised financial markets infrastructure will continue to accelerate, improving efficiencies in the mainstream markets.

Opportunities for cautious growth but heightened investor scrutiny

Given increasing digitalisation we expect continuing focus on fintech as a key vertical within the tech landscape. There may be opportunities to expand for those that identify new business models and innovative solutions that respond to the demands of a digitalised society. However, whilst opportunities to raise external investment may increase for some, parties will be mindful of the potential downsides of rapid expansion, particularly during an economic downturn. We also expect ongoing scrutiny of potential for longer-term profit generation – and investor return – impacting investment decisions and growth plans.

Increasing regulation of tech and data

Regulators are increasingly concerned to ensure that the pivotal role that technology and data companies play for individuals and businesses does not lead to abusive behaviour or systemic risks to markets and essential supplies. In financial services, regulators around the world will continue to extend their influence over these companies either indirectly (via stricter technology risk management and operational resilience rules on financial institutions) or directly (such as recent EU and U.S. proposals for direct enforcement powers against systemically important tech and social media companies).

Tech Legal Outlook 2021

Read our complementary report exploring the key global trends in the technology sector that we believe will shape the legal outlook for businesses in 2021 and beyond.

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