IMF published a paper highlighting the use of some elements of the Bali Fintech Agenda in Pacific island countries, which face significant financial-structural challenges. The paper outlines technologies and policy areas relevant to the Pacific context and provides a potential action plan to help advance the policy agenda. The paper emphasizes the feasibility of adopting fintech applications in the Pacific through a coordinated regional approach, anchored by appropriate regulation and infrastructure.
The paper draws on elements of the Bali Fintech Agenda and uses fintech examples from less developed economies that might be feasible for the Pacific island countries. The Bali Fintech Agenda highlights 12 principles for policymakers to consider when formulating their approaches to fintech. The agenda aims to harness the potential of fintech while managing associated risks. The paper builds on the results of IMF research on financial inclusion showing that small states are more likely to leapfrog into new technologies. The paper first describes the state of financial development and the level of access to technology in the Pacific Island countries. It then focuses on identifying the necessary prerequisites for technology-enabled financial inclusion, including the technological and general infrastructure requirement and the regulatory and market environments. Next, the paper outlines a strategy for promoting fintech solutions in Pacific Island countries in four areas—payment systems, identification requirements, credit sharing information, and risk assessment and management. The paper concludes with key takeaways and policy recommendations.
Technological adoption requires policymakers to provide the appropriate supporting physical and regulatory infrastructure, but this is a demanding task. A regional approach to fintech applications for financial inclusion and regulatory frameworks is essential to overcome capacity and scalability constraints. Regional initiatives such as innovation hubs, regulatory sandboxes, and technological platforms would avoid duplication and harmonize policy and regulatory standards. They enable a two-way knowledge exchange between regulators and digital financial service providers. This would set the stage for the regional know-your-customer utility introduced at the 2018 South Pacific Central Bank Governors’ Meeting. These initiatives would also allow policymakers to build a market environment attractive to incumbent and new market participants.
The implementation of fintech products and services will face risks and constraints that need to be factored into the implementation and risk mitigation strategy. Policymakers should conduct a comprehensive assessment of risks by type and nature to decide how to absorb, control, or mitigate them. The risk assessment forms the foundation of a risk-mitigation strategy, which will help guide policymakers in determining appropriate action items. The paper highlights that work needs to be done in the areas of cyber-security, market, and operational risks. Regulators and institutions in Pacific island countries could be at a disadvantage in coping with the growing risks of cyber threats. The gap between regulatory priorities and knowledge is highest for cyber-security and technological tools for regulation and supervision. This knowledge gap could translate into weaker capacity to confront attacks and fraud, thus increasing Pacific island economies’ exposure to cyber-security risks. Regional approaches are needed to ensure that regulators and supervisors in Pacific island countries can adopt strong controls and overcome resource and skill constraints.
Related Link: IMF Paper
Keywords: Asia Pacific, Banking, Pacific Island, Fintech, Bali Fintech Agenda, Risk Assessment, Regtech, Cyber Risk, IMF
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