Fintech does not currently pose a risk to financial stability, says Financial Stability Board

The Financial Stability Board (FSB), however, said that risks could “emerge quickly if left unchecked”.

It called for regulators across the world to work together to address three areas of risk in particular, including how operational risk from third-party service providers should be managed, and how to mitigate cyber risks. It also urged monitoring for “macrofinancial risks” that could emerge as fintech grows in popularity.

“Regulators need to understand the impact that developments in fintech can have on financial stability, especially given the rapid rise of innovation in this space,” Carolyn Wilkins, senior deputy governor at the Bank of Canada and chair of the FSB’s FinTech Issues Group, said. “Our report … sets out a clear picture of supervisory and regulatory issues, which the FSB will continue to monitor and discuss going forward.”

Earlier this year, the FSB, together with the Committee on the Global Financial System (CGFS), released a report which said that growth in lending by fintech companies has the potential to both benefit and pose risks to financial stability.

“Among potential benefits are access to alternative funding sources in the economy,” the FSB and CGFS report said. “A lower concentration of credit in the traditional banking system could be helpful in the event there are idiosyncratic problems at banks. Fintech platforms may also pressure incumbent banks to be more efficient in their credit provision.”

“At the same time, if fintech credit achieves a significant share of credit markets, it may give rise to systemic risk concerns. Some factors that contribute to increased financial inclusion associated with fintech credit could also lower lending standards in countries where credit markets are already deep,” it said.

News source: Out-law

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