For the first time, senior finance executives, start-ups and policy-makers agreed on actions to minimize risk and capitalize on opportunities created by technology-enabled innovation (commonly referred to as “fintech”). In a joint articulation prepared by the World Economic Forum, they propose four recommendations for the private sector and financial supervisors aimed at safeguarding financial stability and fostering fintech. The recommendations are to:
1. Debate the ethical use of data to clarify the boundaries on the use of customer data for business purposes by actors in the financial system
2. Set up a forum for public-private dialogue on transformation to identify areas where supervisor support is needed to develop technology for enhancing stability
3. Proactively set industry standards to redefine and enforce an approach to good conduct in light of new technology-enabled innovations
4. Monitor and understand fintech innovation in a consistent way to ensure that national supervisors are well equipped to mitigate risks arising from fintech
“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,” said Matthew Blake, Head of Banking and Capital Markets at the World Economic Forum.
“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.
“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,” explained Chris Larsen, Chief Executive Officer of Ripple. “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,” he said.
“Many clusters of innovation have the potential to scale very quickly, potentially transforming the architecture of the financial sector,” noted Andy Haldane, Executive Director, Financial Stability, Bank of England. “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,” he said.
The paper was developed by the Forum in collaboration with Oliver Wyman, and was first discussed at the World Economic Forum Annual Meeting 2016 in Davos among financial leaders in the public and private sectors. It is based on more than 50 interviews with experts from across the industry. If implemented, the measures could help spur the development of fintech innovations while safeguarding the stability of the financial system.