Featured Product

    FSI Paper Discusses Regulatory Framework for Digital Banks

    August 27, 2020

    FSI published a policy implementation insights paper that explores the frameworks in place in worldwide to regulate digital banks and fintech platforms. The paper provides a cross-country overview of the regulatory requirements for digital banking and fintech platform financing in 30 jurisdictions. It describes the range of licensing and ongoing regulatory requirements for digital banking, including transitional arrangements in the startup phase, and fintech platform financing, also offering considerations for financial authorities. The paper suggests that financial authorities will likely have to weigh a number of elements when assessing whether their regulatory framework is adequate or needs to be adjusted to account for new fintech activities.

    The proliferation of new technology-enabled business models has raised questions about the regulatory perimeter. Authorities are assessing whether their existing regulatory framework needs to be adjusted. For digital banking, most jurisdictions apply existing banking laws and regulations to banks within their remit, regardless of the technology they apply. From these jurisdictions, a few have put in place initiatives that are intended to ensure that new banks find it easier to enter the market by allowing them time to complete their build-out or to meet the requirements of the prudential framework in full. The paper highlights that, in the few jurisdictions that have set specific regulatory frameworks for digital banks, the main licencing and ongoing requirements are similar to those for traditional banks.

    The main difference between licensing requirements for traditional and digital banks is in technology-related elements and the aims of the business plan. Digital banks face restrictions on their physical presence and, in some cases, the market segments they are allowed to serve. Their fit-and-proper requirements tend to be more prescriptive in relation to board members’ expertise in technology; a satisfactory track record in operating a technology business; and assessments of technical infrastructure by independent third-party technical experts. In addition, some jurisdictions require digital banks to demonstrate a commitment in driving financial inclusion, particularly for under-served and hard-to-reach market segments. However, most surveyed jurisdictions have no specific regulatory framework for fintech balance sheet lending and many surveyed jurisdictions have introduced crowdfunding regulations. 

    The paper concludes that, in general, financial authorities will probably have to weigh a number of elements when assessing whether their regulatory framework is adequate or needs to be adjusted to account for new fintech activities. Authorities will need to assess not only potential risks of these new activities to consumers and investors, financial stability, and market integrity but also potential benefits for society in terms of strengthening financial development, inclusion, and efficiency. Based on this assessment, authorities will have to consider whether fintech-related risks are adequately dealt with under the existing regulatory framework and whether opportunities for regulatory arbitrage have opened up. Overall, the challenge for authorities will be to achieve a balance that encourages innovation without compromising the soundness of the financial system.

     

    Related Links 

    Keywords: International, Banking, Digital Banks, Fintech, Regulatory Framework, Prudential Framework, Bank Licenses, BIS, FSI

    Related Articles
    News

    PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK

    PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.

    April 15, 2021 WebPage Regulatory News
    News

    EBA Finalizes Standards on Methods of Prudential Consolidation

    EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).

    April 15, 2021 WebPage Regulatory News
    News

    EBA Updates List of Other Systemically Important Institutions in EU

    EBA updated the list of other systemically important institutions (O-SIIs) in EU.

    April 15, 2021 WebPage Regulatory News
    News

    BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks

    BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.

    April 14, 2021 WebPage Regulatory News
    News

    UK Authorities Welcome FSB Review of their Remuneration Regime

    UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.

    April 14, 2021 WebPage Regulatory News
    News

    PRA and FCA Letter on Addressing Risks from Use of Deposit Aggregators

    PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.

    April 14, 2021 WebPage Regulatory News
    News

    MFSA to Amend Banking Act and Rules in Coming Months to Transpose CRD5

    MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.

    April 14, 2021 WebPage Regulatory News
    News

    EC Delegated Regulation on Specialized Lending Exposures Under CRR

    EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.

    April 14, 2021 WebPage Regulatory News
    News

    OSFI Proposes to Enhance Assurance Expectations for Basel Returns

    OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.

    April 13, 2021 WebPage Regulatory News
    News

    ECB Issues Results of Benchmarking Analysis of Recovery Plans of Banks

    ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.

    April 13, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6858