FinTech firms are in a superposition of regulated and unregulated states until they are observed (by a regulator).
For those unfamiliar with the Double Slit Experiment, physicists proved:
- Reality is not defined until it is observed.
- What you observe now can change the past.
- Until an observation, all possibilities are simultaneously true (“superposition”).
This is the current status of many FinTech firms – simultaneously in two quantum states:
- Fully regulated world of traditional banking and finance. The compliance burden is intense, and there is an ever-present risk of missteps that can shut you down (or worse). You’re in the spotlight and authorities are watching. This is your life now.
- Shadow world of unregulated FinTech. Skip most of the licensing hassles. Struggle to find institutional clients. Attract customers who avoid AML. Face ever-present risk of accidentally conducting licensed activities or facilitating illegal ones. This is your life now.
Resolution in coming. Companies are choosing a path, and regulators are forcing the choice. In Hong Kong, digital asset exchanges will bifurcate soon: 100% regulated or zero percent.
We can no longer simultaneously use the well-lit front door or the shady back door.
Neither is wrong. But soon you have to pick one.
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