Prior to the global financial crisis, financial innovation was viewed very positively, resulting in a laissez-faire, deregulatory approach to financial regulation. Since the crisis the regulatory pendulum has swung to the other extreme. Post-crisis regulation, plus rapid technological change, have spurred the development of financial technology (FinTech). FinTech firms and data-driven financial service providers profoundly challenge the current regulatory paradigm. Financial regulators increasingly seek to balance the traditional regulatory objectives of financial stability and consumer protection with promoting growth and innovation. The resulting regulatory innovations include RegTech, regulatory sandboxes, and special charters. This Article analyzes possible new regulatory approaches, ranging from doing nothing (which spans being permissive to highly restrictive, depending on context), cautious permissiveness (on a case-by-case basis, or through special charters), structured experimentalism (such as sandboxes or piloting), and development of specific new regulatory frameworks. Building on this framework, we argue for a new regulatory approach, which incorporates these rebalanced objectives, and which we term ‘smart regulation.’ Our new automated and proportionate regime builds on shared principles from a range of jurisdictions and supports innovation in financial markets. The fragmentation of market participants and the increased use of technology requires regulators to adopt a sequential reform process, starting with digitization, before building digitally-smart regulation. This Article provides a roadmap for this process.Zetzsche-et-al-Article
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