Post on 16-Oct-2021
transcript
Matthew SaalOctober 30, 2019
Best available technology has always been used for money: to validate and record balances…
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…provide safekeeping,…
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…and facilitate transfers
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Technology is transforming every industry
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Always available
Where you want it
Tailored product
On‐demand delivery
Asset‐light business
Contextualization
Buy only what you want
Banking has lagged
Drivers of digital transformation in financial services
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Digital FinanceLow cost /
Highly portable computing
Ubiquitous connectivity
Mass data storage and analytics
Regulatory change
Consumer expectations
The pace of technology adoption in financial services is accelerating
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New technology and approaches across the value chain are transforming the industry
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Source: World Bank and IMF (2019). Fintech: The Experience So Far.
Business models are reconfiguring in ways that challenge existing regulatory approaches
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Existing Regulatory Framework
New products and services
Hybrid businesses that cut across regulators
New providers from outside the regulated sector
Disaggregated and recomposed value
chains
P2P
Cryptocurrency
Robo‐Advisors
Big Data Credit Scoring
Marketplace Finance
E‐Commerce Lending
Mobile Remittance
E‐Wallets
Cloud‐Based Services
Micro‐insurance
Personal Financial
Management
PayGoSolar Leasing
Carrier Billing
FinTech presents benefits and risks with respect to achieving regulatory objectives
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ChallengesEnsuring control of
potential risks
• Potential Risks to financial stability, integrity, privacy & consumer protection
• Internationalisational of actors in the financial sector w/o requisite regulatory coordination
• Competitive dynamics leading to market concentration / monopolistic behaviors
Financial Inclusion
(new better and more affordable
Financial Services)
• Shift towards dynamic efficiency in the financial sector• Improved variety, customization, and convenience of offerings• Enhanced economies of scale that lower the marginal cost of
serving the bottom of the pyramid• Support digital “real sector” economy to accelerate inclusion:
new business models and channel, new data sources and techniques expand overall demand for formal sector finance.
Regulators must balance the risks and benefits of financial innovation
Leveraging the digital opportunity does not come without challenges
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Choices depend on market conditions…
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Argentina
Australia
Bangladesh
Brazil
China
East Asia & Pacific
France Germany
India
KenyaLatin America & Caribbean
Mexico
Middle East & North Africa
Nigeria
Pakistan
Poland
Singapore
South Africa
South Asia
Sub‐Saharan Africa
Turkey
Baltics
Western Europe
Central Asia
Europe and Central Asia (‐CA)
Peru
0
10
20
30
40
50
60
70
80
90
100
‐2 3 8 13 18 23
2014
Formal Ban
king
Pen
etratio
n (%
)
2015 Venture Capital Investment per US$ 10,000 of GDP(Bubble Size = Unbanked Population)
Average: 4.88
I II
IIIIV
I. Bank DominanceII. PartneringIII. Tech DominanceIV. Race to the Finish
…and existing regulatory frameworks
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Civil Law
Entity Based
Common Law
Activity Based
Single Regulator
Multiple RegulatorsPrinciples
Rules
Regulatory tools & frameworks to enable innovation
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Framework for Choosing Regulatory Tools
Regu
lator P
artic
ipation
Maturity & Experimentation of Market
Extensive
Limited
Limited Broad
Updated Law and Regulation (legislative)
Incremental change by licensed entities Wait and See
(liberal)
Test and Learn
(bespoke)
Balance risk vs. enabling
environment for innovationRegulatory
Sandbox
Wait‐and‐See: Monitoring a Trend to understand it better before any interventionTest‐and‐learn: Custom framework to test a new idea in a live environmentRegulatory Sandbox: live, time‐bound testing of innovations under a regulator’s oversight.Regulatory Reform: Reform Existing policy and regulation to allow for new licensing of innovations
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Comprehensive FinTech law – Mexico
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Product‐Specific Laws and Regulations – Thailand
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Decree on Digital Assets Business 2018
Equity Crowdfunding
2015
Debt Crowdfunding (Companies)
2019
P2P Lending (Individuals)
2019
Selected laws, regulations, and notifications 2016‐2019
Regulatory Sandboxes2016, 2017
Insurance Electronic Channels2017
Payment Systems Act
2017
Wait and see approach – China
Source: Aveni and Jenik 2017
P2P lending in China – Policy interventions
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SupTech
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Source: Dirk Broeders and Jeremy Prenio, Innovative technology in financial supervision (suptech) – the experience of early users. Financial Stability Institute, July, 2018
Areas of financial supervision in which SupTech is being used
Challenges• New entrants providing financial services but don’t
fit an entity‐based regulatory structure• New products don’t clearly map to rules/regulators• Regulated institutions seeking to adopt new
technologies that regulations don’t cover or supervisors are not equipped to assess and monitor
Goals• Ensure financial stability and integrity• Encourage and accommodate
innovation (for efficiency, inclusion)• Protect Consumers• Foster competition
1. No one size fits all; depends on existing framework, market conditions, resources2. Apply existing regulations where relevant: not everything that looks new is fundamentally new3. Principles based approach, applied at the granular activity level4. Activity based, entity neutral: level playing field for incumbents and entrants to adopt innovations5. Tech neutral: As long as it meets standards for security, privacy, robustness, we shouldn’t care
what specific technology is used underneath 6. Controlled experimentation in regulation alongside new technology/new business models7. Upgrade supervisory capacity, including through use of technology8. Enhance coordination and cooperation across regulators domestically and internationally
Emerging Regulatory Principles
Developing a regulatory strategy
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