Basel Committee takes a closer look at Fintech
The level of investment and innovation that has gone into the Fintech sector over the last few years is extraordinary. And why not? New approaches to almost every aspect of finance – taking none of today’s norms for granted – promises to deliver better services to customers, lower clearing and settlement risks, bypass intermediaries and digitise and automate huge areas of existing inefficiency.
What will be the impact of these new players and new approaches on today’s financial institutions? Some are betting that their existing market share will crumble. Others are “following the money”, preferring to work from the premise that these new technologies will be absorbed by today’s cashed up players.
The Basel Committee for Banking Supervision — the regulatory arm of the Bank for International Settlements — has issued a new Fintech discussion paper. The committee says that the emergence of these new business models creates a significant set of new obligations on supervisors and banks alike. A delicate balancing act is required of central banks and supervisors. They need to embrace innovation, ensure that competition is not impaired, while at the same time maintain the safety and integrity of financial markets.
The paper sets out a range of strategic and profitability risks, operational, cyber and compliance risks as the key fintech-related concerns. The paper calls on banks and regulators to consider the implications of the use of Fintech, as well as the risks to existing players that new levels of outsourcing and partnerships will impose. For regulators, it calls for cross-sectoral cooperation between supervisors and other relevant authorities, international cooperation, and the use of innovative supervisory technologies.
The Basel Committee invites discussion and comment on the paper, which you may find here.