TECHNOLOGY AND PENSIONS

The potential for FinTech to transform the way pensions

operate and how governments are supporting its development
 Please cite this publication as:
OECD (2017), Technology and Pensions: The potential for FinTech to transform
the way pensions operate and how governments are supporting its development

This work is published under the responsibility of the Secretary-General of the OECD. The opinions
expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or
of the governments of its member countries. This document and any map included herein are without
prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and
boundaries and to the name of any territory, city or area.

© OECD 2017
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Foreword

Technology is rapidly transforming the way that the financial sector is operating, and the
management and delivery of pensions is no exception. Innovative applications of technology for
financial services, or FinTech, are already being used to improve communication with consumers
and their engagement with their pension plans. FinTech also has great potential to help pension
providers make their internal processes more efficient and improve their risk management. The
possibilities that new technologies offer are driving changes in business models and the way in
which financial products are delivered to consumers. These changes can lead to increased
consumer benefit through lower costs and increased accessibility of pensions.
While regulators are keen to promote innovative ideas that can lead to consumer benefit, they
also have to proceed with caution to ensure that consumer protection is not overlooked. Many
jurisdictions are dedicating significant resources to keep up with the rapid technologically-driven
changes so that the regulation can strike a balance that is both adequate and appropriate in this
new environment.
This report provides an overview of how technology is being used to improve pension design and
delivery and how regulators are managing these changes. The discussion on the challenges that
regulators face to support FinTech draws mainly on insights from a roundtable held at the
G20/OECD Task Force on Financial Consumer Protection meeting in March 2017 that brought
together both regulators and industry participants to discuss these issues. The report contributes
to the OECD Going Digital project which provides policy makers with tools to help societies
prosper in an increasingly data-driven and digital world. For more information, visit
www.oecd.org/going-digital.
This report has been prepared by Emmy Labovitch and Jessica Mosher under the supervision of
Flore-Anne Messy, Head of the Financial Affairs Division, and Pablo Antolin, Head of the
Private Pension Unit within the Division. It benefits from comments from Delegates to the
Working Party on Private Pensions, the Committee on Financial Markets, and the G20/OECD
Task Force on Financial Consumer Protection. The OECD would like to thank the participants of
the Roundtable who provided the valuable insights that are reflected in this report.

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Table of contents

Introduction.......................................................................................................................................... 5
Section I: Using technology to enhance interactions with pension members ...................................... 6
Digital communications ................................................................................................................... 6
Platforms and dashboards................................................................................................................. 7
Section II: Impact of technology on internal processes ....................................................................... 9
Scheme management ........................................................................................................................ 9
Investment management ................................................................................................................... 9
Regulatory compliance................................................................................................................... 10
Section III: The impact of technology on business models ............................................................... 11
Section IV: Risks associated with the greater use of technology....................................................... 12
Section V: Regulatory approaches to FinTech .................................................................................. 12
Idea stage ........................................................................................................................................ 13
Compliance stage ........................................................................................................................... 14
Financing stage............................................................................................................................... 15
Implementation stage ..................................................................................................................... 15
Expansion stage .............................................................................................................................. 16
Section VI: Challenges to implementing successful programmes to support the development of
FinTech .......................................................................................................................................... 17
Insights and suggestions to help make programmes successful ..................................................... 19
Section VII: Key takeaways............................................................................................................... 20
References.......................................................................................................................................... 21

Figures

1. Digital Auto-Enrolment Platform Example ......................................................................................... 9

2. Volume-weighted Share of FX Trades Using Algo Tools ................................................................ 10

Boxes

1. Pensions Dashboards ........................................................................................................................... 8

2. Blockchain Technology ..................................................................................................................... 11

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Introduction

This report explores the early regulatory implications of the growing role of technology in
pension provision, and look at what governments are doing more generally to support its
development for the benefit of consumers.
Financial technology ("FinTech") and related technological developments such as
RegTech (using technology to facilitate regulatory compliance) have the potential to re-
shape private pension design and delivery. Individuals are increasingly required to make
complex choices about their pension finances, and consumer engagement with financial
services in general is becoming more digital. FinTech can improve the ways in which
pension providers interact with individual members: enhanced communication techniques
can encourage greater engagement; digital disclosure can reduce compliance costs; robo-
advice can make financial planning more accessible. New technologies are also relevant
to pension providers’ internal processes, including product design, transaction processing,
risk management and compliance. The improvements in efficiency that technology allows
can also translate into lower costs both for pension providers and for members.
Reliance on technology can also create new risks. Less educated and less well-paid
workers might be excluded from technological progress because they cannot or will not
engage with new methods of communicating. Non-regulated entities from other sectors
might cherry-pick some aspects of pension provision, leaving traditional players with less
profitable businesses and creating regulatory risks. There are also concerns over data
protection and data security as well as consumer protection issues relating to the
suitability of the services and products offered.
Regulation must therefore achieve a balance between the objective of encouraging the
development of FinTech-enabled solutions to benefit consumers and that of ensuring
adequate protection against the potential risks to consumers. Several jurisdictions have
been addressing this balance through programmes that intend to work directly with
providers to foster and encourage the development of FinTech-enabled services, while at
the same time closely monitoring and mitigating the potential risks that emerge in the
process. These types of programmes go by several names, but typically include those
referred to as innovation hubs, FinTech accelerators or incubators, and regulatory
sandboxes. Such programmes can be useful tools to ensure that the financial consumer
risks presented by technological innovations are mitigated while also ensuring that
protections in place do not inadvertently stifle innovation, thereby maximising the
ultimate benefit for consumers.
The key findings of this report are:
 FinTech applications are increasing the accessibility of investing in pensions to a
broader consumer base and making communications with pension savers more
effective.
 FinTech is increasing the efficiency of the operation of pension schemes through
risk management applications, the automation of investment processes and the
facilitation of regulatory compliance.
 Governments are making substantial efforts to support the development of
FinTech.
 Innovation Hubs are becoming a key component in regulatory support to help
new businesses understand how existing regulation applies to their ideas.

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 Regulatory sandboxes are emerging as a way to offer flexibility in how regulation

applies for new business models and ideas.
 Effective engagement with all stakeholders will be a key factor in successfully
supporting innovation in financial services.
 Engagement with international regulatory counterparts will be necessary to try to
ensure a certain level of consistency in the regulations and their interpretation and
application.
The structure of the report is as follows:
Section I of the report discusses how technology is being used to improve
communication with pensioners.
Section II looks at the impact that technology is having on the internal processes of
pension providers.
Section III highlights the potential impacts to pension business models.
Section IV underlines some of the potential risks associated with the greater use of
technology.
Section V looks in detail at the approaches that regulators are taking to support the
development of FinTech that has the potential to benefit consumers.
Section VI discusses some of the challenges that regulators are facing.
Section VII concludes with some key takeaways from the discussion.

Section I: Using technology to enhance interactions with pension members

FinTech is being deployed across a range of financial services to enhance interactions

with consumers. FinTech can help to increase trust in financial products, by making them
more accessible, transparent and comprehensible. It can improve data collection and
analysis, aiding product design and personalisation. It can encourage participation in
financial decisions through gamification and education. These developments are likely to
be especially valuable in interactions with millennials, who expect to use technology to
access financial services and who are now entering the workforce.
Financial advice is the area where the impact of FinTech is most evident. Although its
primary application is currently in wealth management, insurance companies are also
adopting the technology. Robo-advice is generally cheaper and more accessible than
“human” advice and so could be especially useful for DC plans where members are faced
with a number of financial choices and where accumulated savings may be relatively
small. According to the UK Government’s Chief Scientific Adviser, FinTech companies
can increase the availability of financial advice to previously under-served populations,
thanks to their “lower cost structures, greater customer reach or superior ability to
monitor or score risk”.

Digital communications
FinTech can help to generate member engagement through the use of digital technologies
in communications, including periodic reporting, marketing communications and other
information. Digital communications can involve simply the storage and delivery of
documents electronically, or it can involve “smart” communications, which use of other
media, gamification, personalisation, or interactivity to attract readers.

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The trend away from paper documentation and towards electronic communications is
being recognised by regulators, who increasingly permit financial service providers to use
electronic communications as the default option for regulatory disclosure. For example,
the SEC allows mutual funds to post their prospectus on line, and ASIC (Australia) has a
“publish and notify” regime. Electronic communications are cheaper than printed
communications and it is easier to track who has received and read them. However,
digital disclosure poses certain risks in terms of disclosure standards: framing of the
information is important so that readers are not distracted from the most relevant
information by additional features. Providers could face liability risks if there is a
discrepancy between the framing of the printed information and the electronic
information. Regulators may therefore need to provide best-practice guides for digital
disclosure to help make sure that consumers will read and understand the most relevant
information.
Overall, digital technologies are likely to enhance the quality and effectiveness of
interactions between pension providers and their members. Smart communications can
take advantage of behavioural insights; for example, by using push notifications to nudge
people into checking their balances or increasing contributions. The UK Competition and
Market Authority’s inquiry on personal current accounts found that “annual interest
statements have virtually no effect on consumer actions, but given immediately
actionable information – text alerts and internet banking – overdraft charges can be
reduced by consumers by almost 25%.” FinTech enables on-demand interaction between
pension providers and their members outside the regulatory reporting periods. In
Australia, members of superannuation schemes can access their accounts through a
mobile phone app; in the UK, Aviva’s Shape My Future app provides online tools and
calculators to help members visualise their lifestyle in retirement.

Platforms and dashboards

Digital technologies could also encourage greater transparency and allow people to
manage their own data more efficiently, ultimately increasing their bargaining power and
lowering the cost of private pensions (especially personal pensions). E-aggregators
facilitate comparison sites or allow people to aggregate and analyse their own data.
Ultimately, individuals might be able to manage all their finances from a single platform.
A number of countries have created “pensions dashboards” to give members and
beneficiaries an easy-to-use overview of their likely pension finances (see Box 1). These
dashboards vary in terms of the depth of the data they contain and the functionality they
offer, but research indicates that they can be a powerful tool for transmitting information,
encouraging people to take action, and in particular for keeping track of multiple pension
pots as individuals move between several different employers. There are considerable
technical challenges and costs in building a dashboard, however, and policy
considerations include both funding and governance in addition to functionality. For
example, whether the dashboard should be funded by the private sector or whether
advertising should be allowed need to be considered.
As for digital disclosure, it is important to ensure that such platforms do not lead to less
engagement or encourage members to skip important information. For example, plans to
launch an auto-consolidation of small DC pots on Australia’s pensions dashboard were
postponed because inactive accounts in some cases offered better protection than active
accounts; users of pension dashboards should be given all the relevant information as well
as a simple “one click” option to take action.

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Box 1. Pensions Dashboards

A pensions dashboard provides a one-stop shop for individuals to see their pension situation.
Depending on the functionality of the dashboard, they can see their public and private pension
entitlements, compare different private schemes, enter personal information (such as a change of
address) just once for transmission to multiple providers, receive regulatory and marketing
communications, compare different payout options, and consolidate small pots.
While dashboards can provide considerable utility to both pension providers and pension
members, and bring transparency, a number of questions need to be addressed in setting them
up:
 Cost: upfront costs may be paid by the government or private providers; ongoing
costs will ultimately be borne by members unless private sponsorship or advertising
is permitted, which raises consumer protection and competition issues.
 Technical challenges: individual records will need to be cleaned, standardised and
digitised.
 Quality and scope of information: the content and display of information needs to be
controlled so that individuals are not tempted into making a decision such as
consolidation on the basis of attractively-displayed but incomplete information.
AUSTRALIA
The Australian Tax Office portal provides up-to-date valuations of all an individual’s super
accounts and of any unclaimed money in “lost” accounts. Individuals can trigger the process of
consolidation on the portal. It is estimated that streamlining processes and consolidating smaller
pots could save AUSD 1 billion per year in running costs.
THE NETHERLANDS
The government set up a website in 2011 to increase engagement and awareness of pension
entitlements. It includes information on state and occupational pension rights on both a gross and
net of tax basis. Occupational schemes are legally required to provide data, but information and
functionality are relatively limited, though a pension simulator may be included in the future. Work
is also being conducted to look at the feasibility of including personal pensions.
SWEDEN
The minpension site was established in 2004 and has evolved to provide real-time information
about state and DB pensions, the current value of pension entitlements, a projection of retirement
income and a simulator to model changes in the projection at different retirement ages. Around
half of eligible users are registered with the site and data suggests that people are most likely to
use the site as they get close to retirement age.
UNITED KINGDOM
The government has set a goal of establishing a pensions dashboard by 2019 where individuals
would be able to view all of their pension pots, including state pensions, in one place. As a
preliminary step, the government has launched a pension finding service to help individuals easily
locate unclaimed pensions. An initial prototype of what the dashboard could look like has also
been developed in collaboration with the industry. Participation by the industry has not yet been
mandated, however, and it is not clear how the project will be funded.

Source: (Johnson, 2016), (Royal London, 2016)

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Section II: Impact of technology on internal processes

Scheme management
FinTech can also help to facilitate pension scheme administration and risk management,
particularly for smaller plan sponsors who may have fewer resources and could benefit
the most from lower costs and improved efficiency. For example, FinTech has been used
to create platforms to facilitate the management of pension schemes for employers by
providing a digital auto-enrolment platform (see Figure 1). These are especially useful for
small employers who may not have the resources or expertise to select a scheme or
connect it with their payroll systems.

Figure 1. Digital Auto-Enrolment Platform Example

FinTech can also facilitate risk management for pension providers. Financial software
such as RiskFirst gives smaller pension schemes access to the same risk management and
reporting tools as larger schemes. Improved risk estimates and forecasting could be
particularly powerful in avoiding large downward swings in DC pots, for example.
New analytical techniques and big data could lead to the creation of more efficient and
more personalised retirement solutions, in particular for the pay-out phase. Financial data
and analytics improve our understanding of consumers and their savings and spending
habits, therefore solutions for financing retirement could be better tailored to individuals’
specific circumstances.

Investment management
Lowering investment costs is recognised as an important contributor to increased
portfolio returns. FinTech is helping to reduce the cost of portfolio management, through
low-cost investment products such as bespoke tracker funds and automatic portfolio
rebalancing and algorithmic trading. Several robo-advice firms are positioning
themselves as business-to-business operations, offering automated portfolio management

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services to businesses providing pensions for their employees. Direct trading between
players on the buy side, especially in the corporate bond market, are helping to offset the
decline in market making as investment banks withdraw liquidity, but in doing so they
transfer trading risks to investors and make markets less transparent, so may need
additional supervision. FinTech is also enabling the emergence of entirely new asset
classes, such as peer-to-peer lending.

Figure 2. Volume-weighted Share of FX Trades Using Algo Tools

Source: Bloomberg

Regulatory compliance
Technological applications can support risk management and compliance through making
Management Information Systems, compliance monitoring and risk training more
efficient and transparent. Technology can support labour-intensive regulatory and
compliance processes such as real-time transaction analysis, online registration, risk-
weighted asset calculations, data analytics and aggregation; modelling, scenario analysis
and forecasting; monitoring internal culture and behaviour and complying with customer
protection processes. Data-mining algorithms can organise and analyse large sets of data,
including qualitative data such as e-mails and recordings.
Technology could also facilitate data sharing between regulators within or across
jurisdictions, or the creation of open-source compliance tools, although this would require
harmonisation of data. As financial regulation requires more and more data, new
technologies might help to streamline both data capture and data analysis. New
mathematical tools could lead to more powerful risk models; emerging techniques such as
agent-based modelling to simulate the likely impact of new policies such as MiFID II
before they are introduced; while smart contracts (computer protocols that can self-
execute, self-verify and self-constrain the performance of a contract) could reduce the
need for some areas of supervision.

Blockchain
Many of the technologies described above rely on blockchain, or distributed ledger,
technology (Box 1.2). Although the application of blockchain to pensions is so far
limited, it has potential use in dashboards, trading and many Regtech solutions.

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Box 2. Blockchain Technology

Blockchain – or distributed ledger – technology makes it possible to connect multiple

parties to each other without passing through intermediaries. These multiple parties all
have access to identical copies of a digital record (for example, a contract or transaction
data), they can update these records to register a transaction that has taken place and
have their amendments validated by the other parties in close to real time.
This makes transactions cheaper and in some ways safer. For example, company shares
can be traded by investors without passing through multiple custodians, as the
shareholder register can be updated directly once an exchange takes place between
buyer and seller. The existence of multiple copies of the transaction means that there is
less risk of a single systems failure reversing the transaction. Once validated,
transactions cannot be reversed.
Distributed ledger technology is potentially applicable to a number of aspects of pensions:
PORTFOLIO MANAGEMENT - Trading (including bespoke derivatives contracts),
reconciliations, foreign exchange management, portfolio rebalancing and proxy voting
could all be made more efficient through the use of dedicated blockchains.
COMPLIANCE - Blockchain would facilitate many aspects of pensions administration,
such as automated identification solutions (KYC) and data recording and transfers. By
giving sponsors, trustees and tax authorities access to a unified, tamper-proof database,
the need for reconciliation of transfers/contributions would be sharply reduced.
DASHBOARDS - Dashboards that allow transactions, such as consolidating multiple
pots, could use this technology.
Source : (UK Government Office for Science, 2015)

Section III: The impact of technology on business models

Technology is changing business models in financial organisations in two main ways.

Within internal operations, it is leading to disintermediation between front, middle and
back offices. Within commercial operations, it is changing consumer behaviour and so
forcing adaptation by providers. These trends are already evident in other financial
institutions but they are likely to affect pension providers in the future. De Nederlandsche
Bank suggests how insurers might be faced with new types of competition for certain
parts of their business, making them less able to bear the cost of their legacy books
(DNB, 2016).
Incumbent pension providers may be at a disadvantage to newer players in exploiting new
technologies, because they are constrained by existing IT infrastructure that is expensive
to change or replace. This could enable new entrants with lower costs to enter some areas
of pension provision, as has already been seen in the area of advice. As an example of the
potential costs of upgrading legacy systems, UBS is reported to have invested USD 1
billion in redesigning processes across its wealth management operations to introduce
robo-advice in the UK.

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FinTech is bringing increased transparency and a greater use of comparison sites. This
trend could lead to pressure on pension providers to provide more granular reporting on
their cost structures and the fees they charge, ultimately leading to a drop in pricing.

Section IV: Risks associated with the greater use of technology

Each of the potential advantages of FinTech carries corresponding risks. Some of these
risks are not new, although they may be more acute because of the applications of new
technologies, for example data security and privacy risks. FinTech also has the potential
to create new types of risk, such as structural changes in the financial services industry
and the entry of non-regulated players. Regulators may wish to impose new training
requirements on pension providers, sponsors and trustees to address FinTech risks as well
as build their own internal capacities to supervise these risks.
In the area of interaction with members, there are a number of potential risks. FinTech
could aggravate financial exclusion for those who do not engage with digital
communications; conversely, there is some concern that consumers will place too much
trust in technological solutions and so the fall-out from any problems with FinTech will
be particularly damaging. One example of this is crowd funding, where small investors
might take more risk than with traditional investment products.
Data privacy and security risks are heightened with the introduction of technologies that
rely on the capture, storage and analysis of large quantities of data in order to provide
improved services. FinTech providers that use cloud-based IT services may put data
beyond the reach of regulators.
Technological advances may lead to a greater degree of advice from and outsourcing to
specialised providers, for example enhanced analytics companies. These companies may
fall outside the scope of pensions regulators, but a failure by them could have negative
consequences for confidence in private pensions.

Section V: Regulatory approaches to FinTech

Regulation of FinTech has to strike a balance between encouraging innovation in order to

reap the potential benefits of lower costs, improved transparency and higher consumer
engagement, providing space for the evolution of business models, and ensuring that
consumers are protected and incumbents are not faced with unfair competition from non-
regulated entities. It also needs to be adaptive in order to accommodate the impacts of
future, unanticipated technological developments and encourage knowledge-sharing
between regulators, supervisors, incumbents and potential new entrants to the pensions
industry.
Regulators also need to be vigilant that the benefits of technology are indeed passed on to
pension members and beneficiaries. Philippon argues that the financial services industry
has so far kept IT efficiency gains for itself, and that the role of the Regulator is to ensure
that disruption is allowed to take place (Philippon, 2017). The regulatory framework
needs to accommodate such disruption and ensure that the same rules are applicable for
both new entrants and incumbents.
Government sponsored programmes to support innovations in the provision of financial
services have been implemented in numerous jurisdictions. The ultimate objective of
these programmes is to ensure that innovation is encouraged, that these developments are

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in consumers' interests, and finally that any consumer risks resulting from these
innovations are adequately mitigated and financial consumer protection ensured.
These programmes can intervene in various stages of an idea's development, from the
initial brainstorming phase to the implementation or even expansion of the resulting
product or service:
 Idea stage: to promote the generation of ideas to improve the provision of
financial services and benefit consumers
 Compliance stage: to facilitate the identification of applicable regulations and the
process of compliance
 Financing stage: to facilitate the raising of capital to fund the implementation of
the project
 Implementation stage: to provide a controlled and safe environment for testing
the idea in the market and to use the feedback and information learned to adapt
product offering or regulation which may be inadequate or inappropriately
constrictive
 Expansion stage: to facilitate the exportation of the idea to other markets and
allow consumers to benefit more rapidly
These stages of development are not necessarily chronological and the programmes
offered may span several stages of development, which is often the case for incubator-
type programmes which offer end-to-end services. Programmes may also target specific
stages, such as an agreement between two jurisdictions to facilitate cross-border
expansion.
While the criteria for a FinTech candidate to participate in these types of programmes
generally includes having an innovative idea that will improve financial services for
consumers and result in a tangible consumer benefit, the types of participants targeted
may vary across jurisdictions. Some programmes explicitly target start-ups, such as the
10,000 Start-up programme in India, while others favour developments by incumbents
such as banks, as is the case in Hong Kong, China. Many programmes, however, are open
to any market participant having an innovative idea to benefit consumers and improve
financial services with technology.
The sections below provide some details on the specific types of support that various
programmes can offer in each stage of the FinTech's development.

Idea stage
Several jurisdictions have developed programmes or incentives to engage with the
industry and to encourage ideas to be put forward for the application of technology to
solve certain challenges observed in the market and to benefit consumers. These
initiatives typically take the form of a network or community which facilitates the
exchange of ideas, support to vet ideas for specific applications in financial services, or
organised competitions to develop concrete FinTech solutions to specific challenges.
A few governments have established or funded efforts to facilitate idea generation and
communication to capture the potential benefits that technology can offer to financial
consumers and engage in discussions with the industry. The Hong Kong Monetary
Authority has created a FinTech Facilitation Office, which includes a dedicated platform
to liaise with the FinTech sector. This platform facilitates the exchange of ideas among
stakeholders to find applications of technology for financial services. It also initiates

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research with the industry on specific applications of FinTech, for example the
application of blockchain technology to financial services. The Belgium government
sponsors the “B-hive”, a platform intended to facilitate innovation and the liaison
between traditional financial service providers and FinTech start-ups. Australia has
established a digital advisory committee made up of industry representatives, academics
and consumer representatives to provide feedback on how the regulators/supervisors are
engaging with the sector and to identify which issues are the most important to address.
Canada has a similar committee, and also invites venture capitalist and tech experts to the
table to understand the challenges they face with particular regulations.
Other governments have established dedicated support for businesses to bring solutions to
solve particular market challenges and benefit consumers. The Advice Unit established
by the Financial Conduct Authority in the United Kingdom is one such an initiative. The
Advice Unit provides regulatory feedback and published resources for businesses
developing models to provide automated advice, either in the form of a personalised
recommendation or through automated investment management services. Businesses
wishing to benefit from the service must meet a number of criteria, including the potential
for lower cost services, consumer benefit and a clear and well thought-out proposal.
Another emerging trend is to host FinTech competitions, commonly referred to as
“hackathons”, to generate ideas for solving specific challenges presented in financial
markets, including those related to financial consumer protection. While more common in
the private sector, one of the first government sponsored events was the TechSprint
sponsored by the Financial Conduct Authority in the UK, a two-day event where market
players came together to develop ideas to use technology to improve the efficiency and
effectiveness of financial regulation. More recently, the Canadian securities regulator
sponsored a hackathon for FinTech applications for regulatory compliance, Know-Your-
Customer requirements and improving financial literacy. The United Arab Emirates has
sponsored a virtual hackathon for applications of blockchain technology, with one
objective being the reduction of financial fraud and cybercrimes.

Compliance stage
Assisting businesses in understanding the regulatory requirements applicable to their
business idea is the most common approach governments have used to encourage
innovation in financial services and ensure that appropriate consumer protections are in
place. Such services or programmes are commonly called “innovation hubs”, FinTech
incubators or FinTech accelerators, though there is no universally agreed definition across
jurisdictions. The goal of these services is to help FinTech companies understand how
the regulation applies to their ideas and to facilitate the registration or licensing process,
which can significantly reduce start-up costs and time-to-market. These services often
operate based on a 'hub and spoke' model (e.g. Australia, Canada, United Kingdom), with
a dedicated team being the central point of contact who can refer specific issues to
relevant contacts in other departments as need be.
This approach helps to ensure that the business models are compliant with requirements
put in place to protect consumers. Often, the regulators/supervisors will also try to reach
out to and engage with market participants who may not realise that the activity they are
engaging in is subject to regulation. The OSC in Canada, for example, provides a website
that uses plain language (no legalese) and provides plain examples of how securities law
may apply, and issues media releases to make participants aware of required regulation
where a lack of awareness has been observed for a specific type of situation.

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An example of a dedicated team is the Innovation Hub in the United Kingdom, which is
dedicated to working on innovation and supporting the growth of FinTechs. The
Innovation Hub provides qualified applicants with a dedicated advisor who sees them
through the compliance process, identifying the relevant aspects of the regulatory regime,
facilitating the application for authorisation, and providing support for up to a year
following authorisation.
Short of having a dedicated advisor, most jurisdictions with a programme in place to
support innovation in financial services will at least provide a service to help aspiring
innovators to understand the applicable regulations. This is true in Abu Dhabi, Australia,
Brazil, Canada, France, Hong Kong, China, Indonesia, and the Netherlands, for example.

Financing stage
While not as common, governments may also provide assistance for innovators to raise
capital or cover the costs for the development of their projects, with the end-goal that
these projects will ultimately benefits consumers. The B-hive platform in Belgium, for
example, facilitates the creation of partnerships between start-ups and traditional market
players to help the business concepts scale-up their idea. The programme 10,000 Start-
ups in India, supported by the government, helps innovators by providing direct access to
venture capital and angel investors. In France, innovators can have access to government
grants or contracts which will help to ensure future revenues. The French government
may also help with operational costs by providing office space, for example. The Abu
Dhabi Global Market assists start-ups connect with potential investors and helps them
with logistical resources.

Implementation stage
Programmes which offer support for the implementation of the innovative idea are most
often in the form of what has become commonly known as a regulatory sandbox. The
principle of the sandbox is to provide a controlled environment in which the business idea
can be tested in real time and where some licensing and/or regulatory requirements may
be relaxed. It also provides a safe environment for the idea to be tested where risks to
consumers are controlled. This not only speeds up the time-to-market, but provides
valuable feedback both to the participant and to the regulator as to how the regulation
does and should apply, including rules relating to consumer protection. This feedback can
then be used to either adapt the product or service offering, or to adapt the regulation
itself. As such, these services are typically reserved for innovative business models for
which there is no direct precedent as to how the regulation should apply, as these types of
ideas require more interactive support. The participating businesses also need to have
considered potential risks to consumers and how to mitigate them.
Jurisdictions which have implemented a sandbox-type approach (date of launch in
parentheses) include Australia (Dec. 2016), Bahrain (June 2017), Canada (Oct. 2016),
Hong Kong, China (Sept. 2016), Indonesia (Nov. 2016), Iran (Dec. 2016), Malaysia (Oct.
2016), the Netherlands (Jan. 2017), Thailand (Oct. 2016), Singapore (Nov. 2016), United
Arab Emirates (Nov. 2016) and the United Kingdom (May 2016). China has also
announced that it will launch a regulatory sandbox.
One type of flexibility that sandboxes may offer is relaxed registration or licensing
requirements. The sandbox in the United Kingdom allows participants a temporary form
of authorisation which allows them to try their idea within a defined period of time, after
which they may apply for full authorisation. In Abu Dhabi, firms are allowed to operate

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in the 'RegLab' for up to two years without a traditional license, but may be subject to
limitations such as the number of products, types of consumers, size of transactions and
the geographies where products and services are offered. The Netherlands allows for
'light' licensing requirements, granting temporary licensees to test-run ideas. Australia has
issued a licensing exemption for businesses offering products to a small number of clients
or for small amounts, and also offers modular licensing, where participants can be
licenced to provide specific services and/or products.
Sandboxes may also have the power to relax certain regulatory and compliance
requirements. In the United Kingdom, certain rules can be 'switched off', allowing the
business to freely test their ideas, albeit within an agreed set of parameters. A 'no
enforcement' action may also be offered, so that in the event the product does not work
the supervisor will not take enforcement again against the company. While not officially
a 'sandbox', the US Consumer Financial Protection Bureau issued its policy on innovation
in February 2016, which establishes a process for FinTech companies to proactively seek
‘No Action’ letters so that regulatory uncertainty does not hinder innovation.
The OSC Launchpad in Canada and the RegLab of the Abu Dhabi Global Market have
the power to tailor regulations for individual companies. In Hong Kong, China,
compliance requirements can be relaxed to allow banks to experiment with new ideas,
and Singapore allows new products to be offered to consumers that are subject to relaxed
compliance rules for a limited amount of time. In Iran, regulation and tax rules can be
relaxed for start-ups. The Astana International Finance Centre planned in Kazakhstan will
offer flexible regulations for start-ups. Where principles-based regulations apply,
providing another interpretation as to how the regulation should apply may be sufficient
and a modification of the rule may not be necessary.
As relaxing licensing and compliance requirements can potentially expose consumers to
additional risks, other measures can be taken or controls put in place to ensure that
adequate consumer protections are in place. In the United Kingdom, applicants must first
be qualified to offer the product or service. The process also requires that the innovators
have a dedicated advisor to follow the process and check the outcomes. In the event that
consumers are harmed from a product or service being tested, the company is required to
provide redress to the consumer to avoid enforcement action. Also, certain rules, such as
suitability requirements, may not be allowed to be relaxed. In Australia companies must
maintain basic requirements such as having professional indemnity insurance, joining an
approved external dispute resolution service and meet conduct and disclosure obligations
such as best interest standards for advice and responsible lending obligations for credit.
Senior executives may also be required to have previous financial services experience. In
Malaysia, requirements relating to confidentiality, appropriate handling of assets and anti-
money laundering must be adhered to.
Following the observations during the testing of the product or service, lessons learned
may be used to adapt existing regulation to ensure that appropriately accommodates the
new business model or product while maintaining adequate levels of consumer
protection. The OSC Launchpad in Canada, for example, uses this feedback to modernise
regulations and remove the pain points for these businesses.

Expansion stage
Governments are increasingly putting agreements in place which facilitate the expansion
of innovative and successful ideas that benefit consumers into new markets. These may
take the form of agreements to fast-track the application process to participate in the

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innovation hubs of other jurisdictions or platforms to facilitate the exchange of

information or ideas across jurisdictions.
Some jurisdictions have entered into agreements which directly facilitate businesses from
one market to enter into another. The Financial Conduct Authority in the United
Kingdom has made bilateral agreements with Australia, Canada, Hong Kong, China and
Singapore which allows each jurisdiction to refer FinTech firms to the other, which
enables the firms to more quickly test their ideas in the new market. A French initiative in
Korea has launched the "French Tech Seoul", which facilitates the entry of FinTech
entrepreneurs from one market into the other. In the same vein, the B-hive of Belgium has
signed a Memorandum of Understanding with Innovative Finance, the trade body for
Britain's FinTech sector, facilitating collaboration between the two bodies. The Abu
Dhabi Global Market has established a FinTech bridge with the Monetary Authority of
Singapore to establish a strategic framework to assist innovators to understand the
respective regimes and provide support in the authorisation process and facilitate joint
innovation projects.
Agreements facilitating more general collaboration and the exchange of information
relating to FinTech innovations are also becoming more common. An agreement between
the United Kingdom and Korea allows the regulators of the two jurisdictions to more
easily share information regarding emerging trends, innovative ideas and regulatory
issues. Such agreements can also help to identify and share any emerging risks to
consumers which may result. Australia has signed a similar agreement with Kenya,
Indonesia and Singapore.

Section VI: Challenges to implementing successful programmes to support the

development of FinTech

There are numerous challenges to successfully implementing programmes to support the

development of FinTech. These challenges relate to the motivation for developing such
programmes and their focus, and having appropriate rules in place and ensuring the
effective functioning of such programmes.
The first challenge that oversight bodies may have to address before establishing a
programme to support the development of FinTech is the need to ensure there is sufficient
scope within their existing mandate to do so. The Financial Conduct Authority in the
United Kingdom is unique in having a mandate to promote competition in the financial
markets, and it uses this mandate to support its regulatory sandbox programme as a way
to encourage innovative new entrants into the market. A more common mandate for
oversight bodies is to promote market efficiency, which many jurisdictions felt was
sufficient to allow them to take measures to support businesses with innovative ideas
using technology in a way which would reduce the firms’ operating costs and in turn the
costs for consumers. Nevertheless, even just having a mandate for consumer protection
should be sufficient in many cases to support those businesses which are rendering costs
that are typically very opaque for consumers, such as the spreads charged on currency
exchange rates, more transparent.
The culture of the organisation also plays a role in the extent to which programmes will
be able to successfully interact with FinTech businesses. Many programmes are centred
on a hub which offers direct support to the businesses. However, while these hubs will
certainly be geared towards technology and innovation, new businesses will ultimately
still have to interact with other areas of the organisation to ensure their ideas are

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implemented and become operational. The hub therefore also needs to engage with other
areas of the organisation to help spread the type of culture which embraces change and
innovation and get the buy-in from senior executives in all areas of the organisation.
Having this buy-in may also help to overcome the functional and practical constraints that
come with the necessity of having many different types of knowledge and functions
involved in the process. Professional biases may contribute to the difficulty in cultural
adaptation, so additional human resources may need to be called upon, ones who not only
have experience in technology but also have a better understanding of the potential risks
involved. The language used to communicate with companies may also need to be
adapted to facilitate understanding. In this context, several jurisdictions are making an
effort to simplify the language used on websites to avoid “legalese” and make the
application of the regulations clearer.
Another challenge is finding the right balance to allow regulatory barriers to be lowered
without compromising on the core principles of the regulatory framework. Given the
speed of the evolution in this area, the framework in place needs to be nimble enough to
facilitate growth while ensuring that the risks are mitigated effectively. Technology and
innovations are also being directed at reducing frictions in transactions. However,
eliminating all frictions may not be desirable as this could result in reduced consumer
engagement and attention with respect to the transactions that they are executing and
which they may not fully understand.
Clarity in regulation is clearly desirable but not always so easy to achieve. Many
unanswered questions remain about how certain innovations should be regulated, such as
the legal issues around the use of distributed ledger technology or settlement finality. Yet
it is very difficult to keep pace with the changes arising from innovation to make sure that
this clarity can be provided effectively without unnecessarily slowing down the pace of
innovation.
Numerous challenges also present themselves for the effective functioning of these
programmes. First is whether the necessary structures and rules are in place. Structural
issues which are not adapted to a digital world such as local ownership requirements,
bank-focused regulation, and non-electronic requirements to comply with “Know-Your-
Customer” rules will impede innovation. Consistency of regulatory treatment and
interpretation so that businesses know how they will be treated and can scale-up is a
second challenge. Even where rules are technically the same, interpretations of their
application may differ not only across jurisdictions but even within the same jurisdiction.
The target of these programmes may also be unclear, as the term FinTech lumps together
many concepts, such that it is not always apparent what is meant, which works against
developing a consistent focus and approach to oversight. The programmes need to be
designed to work for innovative businesses that come in myriad forms and sizes.
A final challenge is the limited resources available to the regulator or oversight body. If
the demand for regulatory support and tailored regulations exceeds the resource capacity
of regulators and supervisors, the regulatory body will not be able keep up with demand
and scaling these programmes could prove difficult. Industry led solutions, such as the
industry sandbox being proposed by Innovate Finance, could potentially help to meet
some of this demand, but would still require the active involvement of regulators.

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Insights and suggestions to help make programmes successful

The suggestions made by participants at the roundtable to effectively support the
development of innovation in finance centred around some key themes: culture,
engagement and capacity.
First, regulators/supervisors need to shift their organisational culture to be more accepting
of and adaptable to innovation and change. Having a dedicated team is just the first step
towards achieving such a cultural shift in this new environment. The support of senior
executive leaders of relevant business teams is also important for the success of this team
and to support the alignment of outcomes for the regulator. Regulators and supervisors
also need to learn from their interaction and experience with these programmes, and adapt
their approach and/or regulations where necessary.
Another way to help achieve a cultural shift is to try to approach regulation through a lens
of consumer benefit in addition to consumer risks. Such a shift in focus could also inform
resource allocation. Measures of success of regulatory efforts could be used which align
with this focus, such as measures of price or consumer satisfaction.
Engagement should be another priority. The engagement of regulators/supervisors with
both internal and external stakeholders at the various stages of a business's development
is crucial for regulators/supervisors to keep up with developments and to define their role
within the FinTech ecosystem. Their role and objectives in supporting the development of
FinTech will be defined in terms of their mandate. Having a mandate to promote
competition is not necessarily needed in order for the regulator to play a role in this
ecosystem. Rather, even just having a mandate for consumer protection should provide
them with the means to encourage more consumer-friendly business models and
transparent fee structures. Engaging with stakeholders will help them to identify where
these objectives can align with their mandate, and internal engagement within the
regulatory body can promote an integrated approach.
Engagement with external stakeholders will aid regulators/supervisors in building their
knowledge and keeping up with new developments. Several jurisdictions have established
FinTech advisory committees, which gather financial, technology and policy experts as
well as stakeholders who may provide a source of funding. Such forums are useful to
understand the challenges the industry is facing and the potential regulatory barriers that
may exist.
Engagement with start-ups from a very early stage can facilitate communication and limit
unnecessary costs of compliance. With early engagement, start-ups can build in the
expected controls, for example, which could become quite expensive to implement at a
later stage. Making an effort to engage with new businesses will also help to establish a
common language and help these businesses to understand the regulator's expectations
and requirements. Many jurisdictions have also observed that such engagement helps
make firms more willing to be regulated and to embrace regulation as a means to gain
consumer confidence and ultimately help their business expand. Furthermore, more
regulatory focus and support could give investors more confidence to invest and thereby
contribute to the growth of the sector, even though the financial sector remains more
regulated than other sectors.
Inter-regulatory engagement will also be critical to improve the consistency of regulations
and the consistency of their interpretation. While many participants acknowledged that
having the same rules in all jurisdictions is not a realistic expectation at this stage, they

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also lamented the lack of consistent interpretation and application even within Europe for
rules implemented at the European level.
Finally, the new environment may call for new ways to engage with market participants
and increase regulatory capacity. While regulatory sandboxes are a positive development
and have been well received by industry participants, participants also acknowledged the
difficulty in scaling up these types of solutions given the resource constraints faced by
regulators/supervisors. Industry-led sandboxes could help to address these constraints and
provide a solution to solve shared problems across the industry with the
regulators/supervisors and help provide them with a good vantage point to follow
developments. Nevertheless, regulatory involvement would remain a necessary
component. Other formats to ensure that the design of policy is effective could also be
envisaged. The traditional approach of issuing written consultations on proposed
regulation may not effectively engage new market participants who could be most
affected by the rules. One proposed solution was for the regulator to host hands-on
workshops with industry participants to design policy that works for real-world cases.

Section VII: Key takeaways

The way in which pensions are set up, managed and delivered to consumers is
transforming with the increased use and applications of technology. FinTech applications
are increasing the accessibility of investing in pensions to a broader consumer base and
making communications with pension savers more effective. FinTech is also increasing
the efficiency of the operation of pension schemes through risk management applications,
the automation of investment processes and the facilitation of regulatory compliance.
Overall, governments' efforts to support the development of FinTech and the benefits this
can bring to consumers is a positive trend. Several jurisdictions have successfully hosted
brainstorming 'hackathon' sessions to develop solutions to specific market or regulatory
challenges. Innovation Hubs are forming a key component in such support to help new
businesses understand how existing regulation applies to their ideas. Regulatory
sandboxes are also emerging quickly as a way to offer flexibility in how regulation
applies for business models and ideas that have no precedent. Nevertheless, as these types
of programmes have only just started, and time will tell if they will be able to be truly
effective in their aim to ensure adequate consumer protections without stifling innovation.
The regulator will need to define its role within this new ecosystem to support innovation
in a way which is aligned with its mandate and will need to work to shift its
organisational culture and capacity to align with these objectives. Significant engagement
will be required to accomplish this, both internally to obtain the support at all levels of the
organisation, but also externally to stay on top of developments and establish productive
relationships with new businesses. Engagement with counterparts internationally will also
be necessary to try to ensure a certain level of consistency in the regulations and their
interpretation and application. Effective engagement will be a key factor in successfully
supporting innovation in financial services, so new ways to engage with all stakeholders
will need to be established to ensure that the organisation and regulations will be able to
adapt to a constantly changing environment.

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References

Dietz, M., Khanna, S., Olanrewaju, T., & Rajgopal, K. (2016, February). Cutting through the noice
around financial technology. McKinsey&Company Insights.
DNB. (2016). Technological Innovation and the Dutch financial sector.
Godwin, A. (2016). Brave new world: digital disclosure of financial products and services. Capital
Markets Law Journal, 11(3).
IIF. (2016). Regtech in financial services: technology solutions for compliance and reporting.
Johnson, M. (2016). The pensions dashboard: vital for UK plc. Centre for Policy Studies.
OIX. (2016). Creating a pensions dashboard.
Philippon, T. (2017). The FinTech Opportunity. BIS.
Royal London. (2016). Pensions dashboards around the world. Royal London.
UK Government Office for Science. (2015). FinTech futures: the UK as a world leader in financial
technologies.

Technology and Pensions © OECD 2017

 Technology is rapidly transforming the way that the financial sector
is operating, and the management and delivery of pensions is no
exception. Innovative applications of technology for financial
services, or FinTech, are already being used to improve
communication with consumers and their engagement with their
pension plans. This report provides an overview of how technology
is being used to improve pension design and delivery and how
regulators are managing these changes.

www.oecd.org/finance

This report contributes to the OECD Going Digital project which

provides policy makers with tools to help economies and
societies prosper in an increasingly digital and data-driven world.
For more information, visit www.oecd.org/going-digital.