Regulators say they promote innovation, but the opposite is true

Economist Art Laffer famously drew a graph on a napkin illustrating that beyond a certain point, increasing tax rates lead to reduced tax revenue. Similarly, there is a Laffer curve of financial innovation. More regulation, more regulators and more regulatory uncertainty increase the cost of and inhibit financial services and payments innovation.

Regulators in the United Kingdom, Australia, Singapore and the U.S. have acknowledged this in establishing “sandboxes” that aim to allow promising fintech ideas to develop without the distracting hurdle of heavy enforcement. But despite some success stories, too many regulators merely say they are promoting innovation. Rather, they are making — not enforcing — new laws as they go.

If strict law enforcement hurts the payments industry and isn’t in the public interest, the law should be changed or eliminated, not selectively enforced. That principle has been applied to a limited extent in some jurisdictions.

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