FinTech Development and Regulatory Scrutiny: A Contradiction? The Case of Latvia

Abstract

The purpose of this study is to examine whether FinTech companies believe that the growing dependence on regulation represents a potential risk for their development. In 2021, we conducted a survey among Latvian FinTech companies to ascertain their attitude toward regulatory scrutiny. We received 31 responses, representing a 33% response rate. The responses show that regulation is still one of the most pressing issues for FinTech companies, even though it is not necessarily regulation per se that causes concerns, but the lack of a regulatory framework that would be suitable for the special situation of the FinTech sector. However, regulation is now regarded as less problematic than it was in a previous survey in 2019, when respondents saw regulation as the most pressing issue. Moreover, the FinTech industry anticipates better support from the regulator, such as more realistic sandbox approaches and a willingness to consider new business models. According to the survey responses, the UK, Estonian, and Lithuanian regulators can serve as inspiration in this regard. Latvian FinTech companies expect regulators to be more flexible and open in their communication. This study is intended to advance regulatory reform by aiding the understanding of the requirements of fast-evolving FinTech companies.