Financial technology firms seeking to shake-up traditional banking pose no immediate risk to the financial system although their development needs to be carefully monitored, a global watchdog said on Thursday.
Some countries, including Britain, have taken a cautious approach to regulating “fintech,” wary of stifling a sector that holds out the prospect of jobs and innovation.
From app-based payment services to crowdfunding and peer-to-peer lending, fintech firms are seeking ways to reinvent financial services and allow people to by-pass banks for everything from paying for services to savings.
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But there appears to be no strong appetite so far among policymakers to formulate rules for a rapidly evolving but still tiny sector. Many banks are seeking to either partner with or buy fintech firms and piggy-back on their know-how, sometimes drawing them into the mainstream.
“It is important for the authorities to stay on top of developments in this area,” said Svein Andresen, secretary-general of the Financial Stability Board, which coordinates financial regulation across the Group of 20 economies (G20) and has been studying the benefits and risks from fintech.
He said “much hype” surrounds fintech and it was essential for regulators to understand what developments will actually change the way financial markets operate.
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“In our judgment, most fintech at this stage, have not come to a point where systemic financial system risks are posed,” he told a Chatham House conference.
Authorities are “acutely aware” of the need to monitor actively and find a balance between acting when the risks begin to rise and allowing new technology to develop, Andresen said.
The focus of the FSB has been skewed to looking at fintech in wholesale rather than retail markets, and with fintech growing very rapidly in some countries, once the “cat is out of the box,” it can be difficult to contain, Andresen said.