The rise of fintech does not currently pose a systemic risk, but a new report from the Switzerland-based Financial Stability Board (FSB) flags a handful of areas that regulators should keep an eye on, including priority areas for increased international co-operation.
The international body issued a report today on the financial stability implications of fintech. It identifies 10 regulatory issues that “merit authorities’ attention”, and it highlights three priorities for greater international collaboration. Those priorities include cyber crime risk, operational risk from third-party service providers and macro risks that could emerge as fintech continues to grow.
The list of other issues includes: cross-border legal and regulatory arrangements; governance and disclosure for big data analytics; assessing the regulatory perimeter; regulatory expertise; and the implications of digital currencies, among others.
“Regulators need to understand the impact that developments in fintech can have on financial stability, especially given the rapid rise of innovation in this space,” says Carolyn Wilkins, senior deputy governor at the Bank of Canada and chairwoman of the FSB’s FinTech Issues Group, in a statement. “Our report today sets out a clear picture of supervisory and regulatory issues, which the FSB will continue to monitor and discuss.”
The report indicates that fintech could produce benefits for financial stability, including increased decentralization; greater efficiency, transparency, competition and resilience of the financial system; and greater financial inclusion and economic growth. Potential risks include both specific micro risks and system-wide macro risks, such as increased connectedness and correlation risk.
One of the challenges to assessing the impact of fintech, the report notes, is the quality of data on fintech activities. With that in mind, it calls on both policymakers and the private sector to improve data on the segment, and it stresses the need for regulators to understand how both the industry and market structures are changing.
The report also says that considering the financial stability implications of fintech is, “particularly important as many innovations have not yet been tested through a full financial cycle, and decisions taken in this early stage may set important precedents.” Against that background, it recommends that policymakers continue to “assess the adequacy of their regulatory frameworks as adoption of fintech increases, with the objective of harnessing the benefits while mitigating risks.”
The FSB says that it will continue to monitor and discuss the evolution of the potential financial stability implications of fintech.
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