Bank regulatory bodies need to coordinate their strategies for dealing with emerging financial technology at a global level, says a new report from International Organization of Securities Commissions (Iosco). The Iosco Research Report on Financial Technology highlights the growing intersection between fintech and securities markets across a number of critical business areas, including financing platforms, robo-advisory services, innovations in bond trading and applications of distributed ledger tech.
“The observation of key trends — such as the greater availability of data, exponential growth in computing power allowing the analysis of ever larger data sets, broader access to and the decreasing cost of goods and services, increasing disintermediation and re-intermediation, and demographic and generational changes — all point towards a crossroads of significant technology-driven change in the offering of financial services,” indicated the report. “Fintech applications are developing at an increasingly faster pace, creating new opportunities to achieve better outcomes for investors. At the same time, as with any change, new risks and vulnerabilities may arise.”
The report notes the way in which regulators are adopting differing tactics to deal with emerging fintech platforms, from setting up dedicated fintech offices, creating sandbox frameworks, and opening labs and accelerators.
“While tech firms operate globally, regulation is conducted largely within national or sub-national borders,” says Iosco. “The local nature of regulation may create challenges regarding cross-border supervision and enforcement, whereas regulatory inconsistency across jurisdictions increases the potential for regulatory arbitrage.”
Regardless of the approaches taken, certain risks are recurring across the fintech sector, wrote Iosco, citing those arising from unlicensed cross-border activity, programing errors in the algorithms that underlie automation, breaches in cyber security, KYC failures and the inability of investors to understand financial products and services.
While acknowledging the potential benefits bred by new innovations, the co-ordinating body says national regulators need to elevate their discussions to the international stage.
“Fintech evolution is taking place in the context of various global trends, including but not limited to the growth of computing power enabling analysis of ever larger data sets, broader accessibility of goods and services, and disintermediation and re-intermediation,” noted the report. “These trends in turn are happening against the backdrop of demographic and generational changes,” concluded the report. “The global nature of fintech creates challenges that regulators should address through international cooperation and the exchange of information.”
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