According to a new report from KPMG UK, Regulation and Supervision of Fintech the scale and pace of fintech development is causing fears among regulators of harm to consumers and risks to the financial system
The scale and pace of fintech development is causing fears among regulators of harm to consumers and risks to the financial system, according to a new report from KPMG UK, Regulation and Supervision of Fintech.
While the benefits of technology are undisputable, the pace at which it is changing the way firms and consumers function is making it hard for regulators and risk experts to keep up. UK regulators are keenly aware of that, and are widening their net and sharpening their gaze as a result. Small fintech start-ups and the Boards of our biggest financial companies need to be ready for a fresh wave of regulatory scrutiny through 2019.
Today’s report finds there are three key aspects of fintech posing risks to the financial system:
1. The increasing reliance on a relatively small number of technology firms. Economies of scale tend to be strong in IT applications, leading to a highly concentrated market.
2. The blurring of boundaries between financial services and other sectors. As the financial sector increasingly interacts with other industries through things like digital wallets and store credit, it becomes much harder to segment and regulate.
3. The maintenance and use of big data sets. Data collection and analytics is new for many firms, and as some high profile cases have demonstrated, it is not a space with a margin for error.
Commenting, Jon Holt, head of financial services, KPMG UK, says:
“Around the world we are seeing different approaches to regulating fintech, but in the UK the direction of travel is consistent with what we have known to date: stringent.
“Some wondered whether the changing world of technology could be an opportunity to reconsider the balance between consumer protection and consumer responsibility. But, in the UK, we wear robust regulation as a badge of honour and it is clear that regulators are turning to some familiar approaches when it comes to protecting consumers. Despite the bold, and ever changing world of technology, regulators continue to rely on demanding transparency; limiting the sale of products to retail customers; and re-writing conduct rules to apply to the latest fintech developments.”
The report also identifies that regulators are increasingly setting rules and guidance for Boards to ensure they have sufficient understanding of the fintech being used by firms, in order to manage the risks effectively. Melanie Richards, chair of KPMG’s Board Leadership Centre and deputy chair of KPMG UK says:
“It is vital that Boards of established organisations have access to expertise on the big technology themes facing business right now. What risks does cloud computing present to your organisation? Do you understand the risks if AI as well as the advantages it can deliver? How far along is your CFO in implementing distributed ledger technology? To challenge the executive effectively, the Board needs to understand these issues and the impact tech innovations can have – both positive and negative.
“Similarly, well prepared fast-growth fintechs will understand they are hurtling towards a regulatory environment that could fundamentally challenge the way they operate and will have appointed Non-Executive Directors with experience of navigating these challenges, or tapped into expertise. For those that haven’t, this should be a wake-up call to do so without delay.”
For more information contact:
Christina Bridge, KPMG Press Office
About KPMG in the UK
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 16,300 partners and staff. The UK firm recorded a revenue of £2.338 billion in the year ended 30 September 2018. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 154 countries and has 200,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.