Light touch, right touch, heavy touch, soft touch…all labels describing the different regulatory approaches adopted down the years. But across the pond, the latest strategy — whereby US regulators are infiltrating industry conferences in the hope of sniffing out financial wrongdoers over a canapé or two —  perhaps warrants a label all of its own.

According to a recent news report, Securities and Exchange Commission (SEC) officials are now busy trawling through financial conference attendee lists as they look to mingle with the big fish of Wall Street and get the lowdown on who’s up to no good in a bid to stop the next Bernard Madoff in their tracks. Bond conferences are reportedly a particular favourite of the regulator.

Whether labelled intrusive, aggressive or even innovative, the latest regulatory strategy has opened a new front in the fight against financial fraudsters.

Such aggressive regulation differs markedly from the situation across the Atlantic where the big wigs at the FCA have adopted not so much a light touch as a loving touch toward the emerging (or rather thriving) fintech sector.

The latest instalment of the blossoming love affair between the UK regulator and the fintech space saw the FCA launch a regulatory sandbox scheme for financial services and technology companies. Under the scheme — which follows launch of Project Innovate in 2014 — successful applicants will win the opportunity to test drive new products and business models under a lighter regulatory framework designed to spur innovation.

“Supporting innovation is an essential part of our role in promoting competition in the interests of consumers,” said FCA acting chief executive Tracey McDermott.

It is hoped that by giving companies the freedom to operate, and in some cases the freedom to make mistakes, they will be able to evolve and to do so more quickly and efficiently than if burdened by the heavy chains of regulation.

Such moves have been supported by the UK Government which recently announced plans to launch a fintech panel and delivery support function, along with so-called ‘fintech bridges’ to help firms expand internationally.

These fintech initiatives, part of a wider Governmental and regulatory drive to establish the UK as the world’s top financial tech hub, sit alongside efforts to promote robo-advice and digital currencies.

The FCA has just launched a unit, for example, aimed at helping advisers launch robo-advice offerings. The new unit is the brainchild of the Financial Advice Market Review (FAMR) which is examining how technology can help close the advice gap through the delivery of cost-effective solutions.

The loose and accommodative regulatory climate in which fintech firms currently operate has thus far proved largely successful. The UK is now considered one of the leading lights of the fintech revolution.  According to the latest FinTech50 list, of the 50 businesses most likely to become a large name in the world of finance, 31 come from the UK.

The UK’s fintech sector is evolving at a faster rate than that of the US which is subject to a more restrictive regulatory regime. The momentum is clearly with London, which now rivals San Francisco and New York as the world’s leading tech hub.

London’s fintech scene can be seen as a shining example of what can be achieved by loosening the shackles of regulation and allowing companies to operate with creative and strategic freedom. Such bright touch regulation is perhaps the new mother of financial invention.

But this new breed of light touch regulation does not come without risk. The term light touch regulation is shrouded in controversy because it failed to prevent — and some would even argue helped create — the financial crisis of 2008. While it is hoped that the lessons of the financial crisis have been learnt, the FCA’s laissez-faire approach to regulating the fintech sector nevertheless needs to be carefully handled.

The fintech industry is still in its infancy and new threats and dangers — particularly in the cybercrime arena — could well be lurking beneath the surface that will only come to light in the months or years ahead. New and emerging sectors tend not to be as heavily regulated as other established segments of the market because less is known about them and the potential dangers they pose. Regulation tends to be retroactive in the way it responds to previous events and previous failures. If regulation is partly a process of trial and error, then we are certainly in the trial phase when it comes to fintech.

The task of regulating the fintech industry is an especially difficult one. To start with, some of the nascent technologies powering these new offerings, such as blockchain in the case of bitcoin, are so hideously complicated and opaque that they are almost beyond the reach of regulators.

Meanwhile, technologies operating in the sharing economy space, such as peer to peer lending, have served to blur the lines of accountability, making it difficult for regulators to distinguish between customers, providers and investors or professionals and non-professionals.

And regulatory guidelines and consumer protections around robo-advice have yet to be clearly defined or set out.  There is no standard or efficient way for consumers to compare different robo-offerings in terms of price and service. Levelling the fintech playing filed will take time. Transparency and democratisation are for now distant regulatory goalposts.  Future regulation of the fintech sector — whether light touch, bright touch or some other touch — will need to put the customer at the centre of the process.

Competition issues will also need to be addressed. Digital disruption threatens to carve out a new financial landscape by reducing and limiting the role and relevance of traditional players such as banks. Much like Uber’s assault on black cabs, fintech firms operating in a softer regulatory environment pose a real competitive threat to established financial services firms. Fintech firms and banks, for example, operate in wholly different regulatory environments.  While the regulator is looking to stimulate growth in fintech, banks are changing their business models in response to the strict capital requirements put in place in the wake of the financial crisis.

The regulator is right to encourage innovation and growth in the fintech space. But it must be careful not to establish a two tier regulatory system where banks and insurers have limited room to grow and evolve due to onerous regulations and new digital players are allowed to flourish in a regulatory free-zone.

However, the FCA cannot simply cover all financial services players with a one-size-fits-all regulatory blanket. It needs to take a pragmatic and flexible approach and recognize that different sectors of the market require different modes or degrees of regulation.

For the time being, the progressive, common sense — or bright touch — approach to financial technology companies is sensible because it will help the industry expand and evolve and put the UK at the very centre of the fintech revolution. And this will have obvious benefits for the wider economy.

But fintech players are perhaps advised to enjoy the regulatory honeymoon while it lasts. The sector will inevitably be subject to stricter regulations as it increases market share and expands into different sectors.  But for now, those attending fintech conferences and other such networking events in the UK — as opposed to the US — can be reassured that there will be no regulators snooping around.  For now…