The layers of digital financial innovation : charting a regulatory response Articles uri icon

publication date

  • August 2020

start page

  • 381

end page

  • 421


  • 2


  • 25

International Standard Serial Number (ISSN)

  • 1532-303X


  • The increasing penetration of digital technologies in financial markets is evidenced by promising adoption rates among users, expanding presence of fintech firms and bigtech providing techfin services, and the growing use of fintech solutions by incumbents. The increasingly popular term "fintech" captures the accelerated transformation of contemporary financial markets driven and enabled by technology, and encapsulates its multifarious potential impact on services, market structures, and business models. This Article first aims to devise and propose an analytical framework to understand the digital challenges to financial regulation based on the "layers of digital financial innovation" theory. Accordingly, digital innovation (fintech) is stratified in three layers: the structure layer, activity layer, and players layer-each of which identifies and analyses the impact of digital innovation on a financial-market dimension. Consequently, a multi¬≠layered regulatory response is proposed. This Article will consider different regulatory strategies devised to face each layer of fintech, as risks and benefits differ in each layer. This Article's starting premise is that any attempt to approach fintech as a single, global phenomenon will sink in the vast complexity of a multifaceted, open process phenomenon and is bound to fail. Our understanding is that the intricacies in embracing the impact of fintech on financial markets and the difficulties in apprehending its consequences for regulation and supervision are largely exacerbated by the lack of perception of its multi-layered nature. Based on a three-variable function to assess the adequacy of regulation and devise a fit-for-purpose regulatory response, a taxonomy of policy challenges will be addressed, and a multi-layered regulatory strategy is proposed accordingly.


  • Law


  • fintech; finance; markets; architectural neutrality; financial regulation