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

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    US Agency Publications Address Basel, Reporting, and CECL Developments

    The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances

    May 09, 2022 WebPage Regulatory News
    News

    SEC Extends Comment Period on Climate Risk Disclosures

    The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.

    May 09, 2022 WebPage Regulatory News
    News

    APRA Reduces Committed Liquidity Facility, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.

    May 09, 2022 WebPage Regulatory News
    News

    EIOPA Responds to Stakeholder Views on Blockchain in Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.

    May 06, 2022 WebPage Regulatory News
    News

    HKMA Announces Decisions on CCyB and Loan Guarantee Scheme

    The Hong Kong Monetary Authority (HKMA) announced that the applicable jurisdictional countercyclical capital buffer (CCyB) ratio for Hong Kong remains unchanged at 1.0%

    May 06, 2022 WebPage Regulatory News
    News

    CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks

    The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.

    May 06, 2022 WebPage Regulatory News
    News

    PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down

    The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.

    May 06, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8168