Financial authorities put fintech, regtech, suptech on global agenda ahead of G20

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Asia met in Sydney, Australia at a meeting hosted by the Reserve Bank of Australia to discuss cybersecurity and the use of fintech to promote financial inclusion and access to trade finance, among other issues. Membership of the RCG for Asia comprises financial authorities from Australia, Cambodia, China, Hong Kong SAR, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, Philippines, Singapore, Sri Lanka, Thailand and Vietnam.

The group discussed cybersecurity and resilience in the financial sector and ways in which they can be enhanced. Members identified sharing of cross-border and cross-sectoral cybersecurity information as one area in need of strengthening. Challenges to progress in this area include the fact that such information currently falls outside of established information exchange agreements; concerns about the sensitivity and timeliness of information; and the absence of established information sharing frameworks and taxonomies.

Members considered the use of financial technology (fintech) to promote financial inclusion. While technology has enabled financial service providers to create more customised, accessible and affordable products and services for underserved individuals and communities, there are risks. Against this backdrop, members discussed the mix of policies and regulatory environment that balances risk and innovation. Some of the ideas included regulation focusing on the risks involved in specific activities rather than entities, and promoting an environment that does not hamper innovation.

There was also discussion of access to trade finance. While almost 80% of trade is financed by credit or credit insurance, access is uneven across entities, particularly small and medium-sized enterprises. Members received presentations that suggest that the perception of country risk, counterparty risk, anti-money laundering and know-your-customer requirements, and capital costs that do not fully reflect the risk characteristics of trade finance were possible impediments. Potential solutions include digital technologies, capacity development, training, and adoption of the Legal Entity Identifier.

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In another RCG meeting, for Middle East and North Africa, the group discussed how technology can be leveraged to achieve supervisory and regulatory objectives (suptech). Membership includes financial and regulatory authorities from Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, Turkey and the United Arab Emirates.

They considered the potential uses of suptech and how to facilitate innovation while at the same time maintaining effective oversight. They also exchanged views on how it could change supervision in the future and some of the challenges that technology might raise for financial sector supervisors, such as the skill sets that they will need, oversight of decentralized systems and distributed ledgers, and data protection. Members also discussed the use of technology such as big data and machine learning to help financial institutions comply with regulatory requirements (regtech).

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In another initiative, the Bank for International Settlements’ Financial Stability Institute (FSI) and the G20’s Global Partnership for Financial Inclusion (GPFI) convened the fourth biennial conference on global standard-setting bodies (SSBs) and innovative financial inclusion on 25-26 October 2018 in Basel, Switzerland.

The conference came on the heels of the launching at the International Monetary Fund and World Bank Annual Meetings of the Bali Fintech Agenda – a 12-element blueprint for harnessing fintech’s opportunities, including for financial inclusion and financial sector development, while mitigating emerging risks to vulnerable retail customers and to the integrity and stability of the global financial system.

Around 90 invited thought leaders attended the conference, representing global SSBs, national financial sector authorities, international organisations and private sector institutions on the front lines of what the Bali Fintech Agenda refers to as “the fintech revolution”.

The conference took place in the context of accelerating change in the financial services landscape in countries across the income spectrum, including expanding opportunities for financial inclusion, but also new challenges for country-level authorities and for SSBs.

Following a video offering reflections by Philippines central bank governor Nestor Espenilla on the dramatic changes brought about by fintech since the first biennial FSI-GPFI conference in 2012, participants discussed the implications of these changes for financial regulation and supervision and the work of the SSBs.

Participants explored specific examples of adapting regulatory, supervisory and safety net practices to take into account fintech developments; ways for financial sector authorities to leverage the same technologies driving fintech to support their own work; and the application of the concept of proportionality in the implementation and assessment of international standards.

A primary objective of the conference was to foster coordination and collaboration among SSBs on issues of cross-cutting relevance to financial inclusion. In this context, the conference explored lessons learnt from the ongoing coordinated action among SSBs on de-risking as well as the new collaboration imperatives that accompany possible fintech breakthroughs of financial inclusion relevance.

The conference culminated in a session where senior representatives from SSBs and participants examined the implications of innovative financial inclusion for global standards and guidance, building on the previous discussions. This final session brought forward the key topics on which further coordination, collaboration and information-sharing might be beneficial.

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