World Economic Forum makes recommendations on FinTech

The World Economic Forum (WEF) published today, in collaboration with international management consulting firm Oliver Wyman, a paper that summarizes key opportunities and challenges created by technology-enabled innovation and proposes four recommendations, aimed at safeguarding financial stability and fostering innovation, for the public and private sectors to consider.

“Understanding the impact of technology-enabled innovation on financial stability” articulates its findings from a multitude of interviews and roundtables held with leaders of the financial world, from financial services executives to policymakers, aiming to lay out FinTech agenda. The group of 50 banking executives, startups and regulatory bodies convened by the World Economic Forum, include Western Union, UBS, HSBC, Ripple and Bank of England.

The four recommendations for the private sector and financial supervisors included in the paper can be condensed to a:

Debate on ethical use of data: “Government, in collaboration with financial supervisors, should facilitate a public debate involving consumers and practitioners to clarify the boundaries for which financial services companies can use personal data for business purposes”;

Public-private dialogue on transformation: “A global forum should be established for public-private sector dialogue aimed at discussing technology-enabled transformation in financial services, particularly to identify areas where supervisor support is needed to develop technology for enhancing stability”;

Approach standards for monitoring and understanding technology-enabled innovation: “The international supervisory community should define a set of standards on internal capabilities required to ensure that national supervisors are well equipped to monitor and mitigate against risks arising from technology-enabled innovation”;

Proactive standard setting: “The private sector should create industry standard setting bodies that redefine and enforce standards of good conduct in light of new technology-enabled innovations”.

Whilst the document acknowledges the use of technology in finance is nothing new, the financial sector is at an inflection point, “as technology, regulatory uncertainty and the current macroeconomic environment have served as catalysis in enabling new entrants and have started a trend towards incumbent disintermediation”.

New technologies come with great promise for a more efficient and accessible financial system, promoting increased access, lower costs, improved risk management, increased competition, diversification of risk, and increased collaboration. At the same time, technology-enabled innovations also bring a new set of risks to the financial system in subjects such as alternative sources of finance, market electronification, security of data, industry conduct, payments effectiveness, and regulatory arbitrage.

WEF contributor Andy Haldane, executive director, financial stability at the Bank of England said: “Many clusters of innovation have the potential to scale very quickly, potentially transforming the architecture of the financial sector. The regulatory community recognizes this and has begun to work with the private sector to understand and develop appropriate safeguards for this new financial architecture, in ways which benefit users of financial services.”

Ripple CEO Chris Larsen further explained: “One of the most important challenges we need to solve is building a framework that’s global first and scales to accommodate the fast-changing landscape. It will require close partnership between the private and public sectors internationally to establish everything from policy and regulation to technical web standards that will foster innovation and early adoption while minimizing risks”.

Matthew Blake, WEF head of banking and capital markets states: “Historically, an inherent tension has often existed between innovation and stability. This publication represents the first time that incumbents, financial supervisors and fintechs have come together collectively to address the present wave of technology-enabled transformation in the financial services sector.”

“Global fintech companies have vast access to consumer and business data that enable businesses to develop products and services that meet the emerging needs of consumers,” said Hikmet Ersek, President and Chief Executive Officer of The Western Union Company. “With that access comes great responsibility, the need to balance business offerings with risks, and concerns that relate to ethical data usage and digital security,” he said.

The full document can be read here.