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Many regulators have slowed down their reviews and approvals of new FinTech applications, partially because they are concerned that there are already too many FinTechs and too many crypto companies who pose too many risks for consumers (thinking about recent banking and crypto platforms collapses)… Some regulators even shared their (unofficial and personal) views that they don’t see a need for more FinTechs or more crypto startups to emerge and begin operations right now, because it could possibly mean that more customers could lose money or become victims of fraudulent manipulations.

I violently disagree. It would make sense to have fewer companies in a perfect market, where all the big problems are solved, no significant innovations are needed, and where the products and services offered exactly meet the needs and expectations of the consumers.

However, the current situation in the financial sector is very far from ideal. In fact, it’s full of problems:

• There are very few decent savings options offered to the average consumer. For example, ECB rates at which the commercial banks can deposit and refinance funds range between 3.25% and 4%, however, the interest paid on customers’ terms deposits is still less than 2% (which does not even cover inflation).
• Offering investment products to retail customers continues to be a very obscure and often misleading process, it remains extremely difficult for customers to assess the profitability and risks of many investments, and statistically, the vast majority of customers who purchase investment products lose money.
• Consumers and business customers are overcharged for cross-border payments and payments in foreign currencies by most traditional banks.
• Payment terms offered by large companies to their suppliers (90 days) are very unfair, considering the inflation factors and the increased cost of operating capital financing.
• It is very likely that many banks continue to hold illiquid and overpriced assets, such as loans to commercial real estate developers or to loss-making corporations.

The list obviously goes on.

It is clear that more innovation and disruption are needed to continue making gradual improvements within financial services.

However, some regulators and policymakers are currently using consumer protection arguments as an excuse to make it more difficult and expensive for new financial startups to launch their products.

Consumer protection regulations are normally designed to protect consumers from unfair, deceptive, or abusive practices by businesses. However, during recent years more and more government activities positioned as “to protect consumers” were in fact protecting large financial corporations and introducing even higher barriers to entry.

Don’t get me wrong – consumer protection and consumer confidence are super important. It can help protect us from unsafe products or deceptive advertising and it creates a decent level playing field with respect to fraud protection, online safety, transparency of costs, and fees.

However, too many regulations can be counter-productive.

For example, I personally don’t care at all about the ESG ratings of my bank or my retirement savings provider, however, when they send me their annual statements, instead of talking about how to increase the profitability of my savings, they talk about their ESG strategy (because it’s required by law). Ideally, I would love to find an accredited pension plan that does not care about ESG and allows me to invest in gold and bitcoins, but I have not discovered them yet. (If you find one, please, send me a referral link!!!)

Another argument I have against excessive consumer protection is that in some areas I’d like to make my own choices, even if the government believes that my choice could be harmful or socially undesirable. It is important to strike a balance between consumer protection, personal choices, and economic freedom, right? 

Remember the movie (or the underlying book) “Thank You for Smoking”? 🚬

The main character, Nick Naylor, is a tobacco lobbyist who is constantly under attack from people who believe that smoking is harmful. However, Naylor is able to defend his position by arguing that people have the right to make their own choices, even if those choices are harmful. The book is a satire of the tobacco industry, but it also raises important questions about free will, personal responsibility, and the role of government. 

Here are some of my favorite quotes:

• “The government doesn’t want you to smoke because they want you to be healthy. They want you to be healthy so you can pay taxes for the rest of your life.” 
• “If you’re going to tell people the truth, be funny or they’ll kill you.“
• “If you’re not outraged, you’re not paying attention.“

What’s your view on the balance between consumer protection regulations versus personal choices? 🤔

Start listening to this episode on the Compliance That Makes Sense podcast!🎧