The Financial Stability Board (FSB), an international body that monitors and coordinates national financial authorities and international standard-setting bodies chaired by Mark Carney, Governor of the Bank of England, has been analysing the potential financial stability implications from FinTech with a view to identifying supervisory and regulatory issues that merit authorities’ attention, a press release states.
Ten areas have been identified, of which the following three are seen as priorities for international collaboration:
- the need to manage operational risk from third-party service providers;
- mitigating cyber risks; and
- monitoring macrofinancial risks that could emerge as FinTech activities increase.
Addressing these priority areas is seen as essential to supporting authorities’ efforts to safeguard financial stability while fostering more inclusive and sustainable finance.
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, said Carolyn A. Wilkins, Senior Deputy Governor at the Bank of Canada and chair of the FSB’s FinTech Issues Group. Our report (…) sets out a clear picture of supervisory and regulatory issues, which the FSB will continue to monitor and discuss going forward.
The report developed a framework that defines the scope of FinTech activities to be covered and classifies them by their primary economic function. This enables the analysis to be technology neutral. Applying the framework to various case studies then helps to draw out the potential benefits and risks from FinTech.
Potential benefits identified in the report include decentralisation and increased intermediation by non-financial entities; greater efficiency, transparency, competition and resilience of the financial system; and greater financial inclusion and economic growth. Potential risks include institution-specific micro-financial risks that could emerge and system-wide macro-financial risks, for instance increased connectedness and correlation risk.
The report notes the need for the official and private sectors to improve data on FinTech applications, and for regulators to understand how businesses and the market structure are changing. In particular, international bodies and national authorities should take FinTech into account in their risk assessments and regulatory frameworks.
The FSB will continue to monitor and discuss the evolution of the potential financial stability implications of FinTech developments.