IMF Warn of Financial Innovation Risks

Posted on June 14, 2019 by Editor

The International Monetary Fund (IMF) have added their voice to those highlighting the unique challenge big tech and fintech pose to financial stability at the opening of the G20 Seminar on “Our Future in the Digital Age” in Japan last week.

Christine Lagarde, head of the IMF, voiced concerns that, if not managed with balance, innovation could benefit only a select few and increase instability.

The entry of big tech firms, with deep pockets, wide reach and access to vast quantities of data, into the financial services could accelerate market concentration, reduce competition and threaten privacy. This, in Lagarde’s words, ‘presents a unique systemic challenge to financial stability and efficiency.’

New technologies have already brought significant upheaval within the lending and payments system. As previously outlined by the ECB’s Yves Mersch, fast-moving big tech firms could easily come to dominate the market, moving banking services to a less regulated part of the financial system. A clear example is in China’s rapid technological growth, which has led to only two companies controlling 90% of the mobile payments network – creating vulnerability through lack of competition.

Of course, innovation can also be transformative for financial inclusion – as the IMF and World Bank Bali Fintech Agenda survey highlighted, countries overwhelmingly see fintech as having the potential to promote growth, increase access to financial services for poorer communities and close the gender gap.

But how to foster innovation while reducing the risk of instability?  Previously the IMF has called for balance and international alignment on regulation. Countries surveyed also expressed a wish for greater international cooperation on cybersecurity, payments and anti-money laundering regulation.

Read Lagarde’s speech here.

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