At a seminar on "Statistics on Fintech," Professor Claudia Buch, the Vice-President of Deutsche Bundesbank, discussed how digital innovations can be a catalyst for structural change in the financial system and can affect the risk-stability trade-off. In the context of the central bank mandate on financial stability, he outlined the key regulatory issues related to fintech and bigtech firms, highlighted the importance of surveillance of non-traditional financial institutions, and emphasized that better statistics are needed to improve surveillance. Better statistics help in addressing the "big data paradox" but the existing statistical systems provide little information for a structured surveillance of the digital innovation trends.
Ms. Buch stated that the evolution of service provision by fintech and bigtech firms is a particularly important issue for central banks. Essentially, all business areas are affected, including financial stability, prudential supervision, payments, markets, and monetary analysis. Digital innovations and improvements in information technology have the potential to significantly change the competitive structure of banking markets. Fintech and bigtech firms potentially have comparative advantages over banks in deploying big data techniques, artificial intelligence, machine learning, or social media data for credit scoring or risk assessments. Obtaining reliable information on the activities of fintech and bigtech firms from traditional statistics and reporting systems is difficult though. Given this patchy knowledge base, it is vital to monitor the resilience of financial institutions. However, data requirements go beyond immediate central banking tasks. Data on these firms is also needed in areas such as cyber security or competition policy. Hence, there is a need to monitor new trends and this requires harmonized statistical definitions.
To close the data gaps, the Irving Fisher Committee (IFC) has set up a Working Group on FinTech Data Issues to take stock of the existing data sources, identify data gaps, provide guidance on fintech classification issues, and develop a way forward. In addition, IFC has conducted a membership survey in 2019, which informs about approaches that central banks pursue with regard to fintech data. The survey covered the current statistical infrastructure, "fintech gaps" in statistics, fintech data demands from a user perspective, ongoing initiatives to measure fintech, and the role of international coordination. Going forward, Ms. Buch sees four main priorities for regulators and supervisors:
- First, improving the statistics database on providers of digital financial services is key. Better data are needed to assess risks, vulnerabilities, and resilience. Entry into the provision of financial services should be conditional on the provision of sufficient data and information that allows regulators to make the necessary assessments of risks. The recent survey by IFC shows that the statistical infrastructure is not yet geared to this new phenomenon. There is a lack of shared concepts and data. Strong cooperation on the national and the international level will thus be needed, which is one of the priorities of future work in the IFC.
- Second, activities should be regulated irrespective of the institution offering it. This should eliminate possibilities for regulatory arbitrage so that risks are not shifted from regulated sectors toward new market participants for which these rules do not apply. Hence, regulation of new market participants should follow the principle of "same risk, same rules."
- Third, speeding up structural change might be perceived as being excessively disruptive at the current juncture. It may be argued that testing the new resolution regimes too early could undermine the credibility of reforms. Yet, simply preserving the current market structures entails risks as well. Protecting the market shares of (large) incumbent financial institutions might counteract the reforms' objectives to address the too-big-to-fail issue. The potential for harnessing efficiency gains may be squandered.
- Fourth, close cooperation between regulators is needed. This includes international cooperation in case innovations can have cross-border implications. However, cooperation is also needed between regulators such as competition authorities and financial regulators that have to assess and deal with relevant aspects of the same market.
Related Link: Speech
Keywords: International, Germany, Banking, Fintech, Bigtech, Financial Stability, Statistics, Resolution Regime, IFC, Bundesbank, BIS
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