Fintech and the Innovation Trilemma

Authors

Yesha Yadav
Chris Brummer, Georgetown University Law Center

Document Type

Article

Publication Title

Georgetown Law Journal

Publication Date

2019

ISSN

0016-8092

Page Number

235

Keywords

Fintech, financial regulation, big data, securities, Bitcoin, crowdfunding, P2P Lending, market integrity

Disciplines

Banking and Finance Law | Law | Science and Technology Law | Securities Law

Abstract

Whether in response to roboadvising, artificial intelligence, or crypto-currencies like Bitcoin, regulators around the world have made it a top policy priority to supervise the exponential growth of financial technology (or "fintech") in the post-Crisis era. However, applying traditional regulatory strategies to new technological ecosystems has proven conceptually difficult. Part of the challenge lies in the tradeoffs involved in regulating innovations that could conceivably both help and hurt consumers and market participants alike. Problems also arise from the common assumption that today's fintech is a mere continuation of the story of innovation that has shaped finance for centuries.

This Article provides a novel theoretical framework for understanding and regulating fintech by showing how the supervision of financial innovation is invariably bound by what can be described as a policy Trilemma. Specifically, we argue that when seeking to provide clear rules, maintain market integrity, and encourage financial innovation, regulators have long been able to achieve, at best, two out of the three goals. Moreover, today's innovations exacerbate the tradeoffs historically embodied in the Trilemma by either reconfiguring or disintermediating traditional financing operations and the discrete services supporting them, thereby introducing unprecedented uncertainty as to their risks and benefits. This Article thus proceeds to catalogue the strategies taken by regulatory authorities to navigate the Trilemma, and posits them as operating across a spectrum of interrelated responses. It then proposes supplemental administrative tools to support not only market, but also regulatory data gathering and experimentation.

Recommended Citation

Yesha Yadav and Chris Brummer, Fintech and the Innovation Trilemma, 107 Georgetown Law Journal. 235 (2019)
Available at: https://scholarship.law.vanderbilt.edu/faculty-publications/1084