The Basel Committee has joined the growing list of regulators publishing consultation papers on fintech.
The paper (PDF 0.98 MB) describes a number of fintech developments, and summarises the latest state of play from national regulators in responding to these developments.
The paper also sets out a number of observations and initial recommendations, many of which will no doubt be translated in due course into principles that banks (and supervisors) should meet – and against which banks will be assessed by their supervisors.
The nascent principles for banks focus on banks identifying, monitoring and managing the risks to them arising from fintech, including strategic, operational, compliance and cyber security risks. This requires banks to have the necessary governance structures, risk management processes, IT and outsourcing procedures in place.
Although the Basel Committee calls for a ‘balanced approach’ to regulation and financial innovation, in practice the balance is drawn at the regulatory end of the spectrum – the paper refers to the need for regulation to promote the safety and soundness of banks, financial stability, consumer protection and AML, while the promotion of financial innovation is reduced to attempting to ensure that regulation ‘does not unnecessarily hamper beneficial innovations in financial services’.
Meanwhile, bank supervisors are encouraged to (a) cooperate with other public authorities responsible for oversight of regulatory functions related to fintech, such as conduct authorities, data protection authorities, competition authorities and financial intelligence units, and to cooperate internationally with other supervisors; (b) assess their current staffing and training models to ensure that the knowledge, skills and tools of their staff remain relevant and effective in supervising new technologies and innovative business models; (c) review their current regulatory, supervisory and licensing frameworks in light of new and evolving risks arising from innovative products and business models; and (d) use technologies such as artificial intelligence and advanced data analytics to improve supervisory efficiency and effectiveness (‘SupTech’).