BIS Paper Finds Accommodative Regulation As Driver of Fintech Adoption
BIS published a working paper that studies the fintech developments to identify drivers of fintech adoption worldwide. The analysis showed that fintech adoption is higher where there is unmet demand for financial services and where regulation is accommodative. While fintech innovations can sometimes overcome specific market failures, fintech activities will remain subject to the risks traditionally present in finance, such as liquidity mismatches, speculative bubbles, interconnectedness in the financial system and, potentially, systemic importance and moral hazard with large intermediaries. As such, there is a need for public policy intervention in the form of adequate and proportionate regulation and supervision.
This paper looks at how agents in different economies around the world are adopting fintech. Fintech services are expanding in payments, credit, wealth management and insurance, in both advanced and emerging market and developing economies. Yet the scale of adoption differs widely. The paper seeks to explain why fintech innovations are more widely adopted in some economies and markets, but not in others. The available evidence shows that unmet demand is a strong driver in emerging market and developing economies and in under-served market segments. The high cost of finance and high banking sector mark-ups are also important.
The paper highlights that a number of studies show how the regulatory environment can aid or hinder fintech adoption. Countries with a stronger rule of law, quality of regulation, control of corruption, ease of entry, and higher profitability of extant intermediaries have higher volumes of alternative finance, including fintech credit. However, countries with less stringent bank regulation, as measured by a World Bank index, have higher investment in fintech. These countries may also be more permissive toward new entrants, in addition to the findings showing higher fintech credit volumes for these countries. Countries in which regulation was judged in surveys to be more adequate (rather than excessive or inadequate) had higher alternative finance volumes.
Regulatory factors can play a role, but in general, regulatory arbitrage does not seem to be a primary driver of fintech adoption to date, at least at an aggregate level. There may be specific activities for which regulatory arbitrage is a factor. Finally, younger cohorts may be driving adoption in many economies, but not universally. Population aging and changes in trust in technology and fintech may have important effects, shaping not just the extent but the future direction of fintech adoption. The available evidence also supports the idea that fintech adoption may enhance cross-border financial integration.
Related Links
Keywords: International, Banking, Insurance, Fintech, Insurtech, Bigtech, Regulatory Arbitrage, Fintech Regulation, BIS
Previous Article
ISDA Announces Plans to Consult Again on Pre-Cessation FallbacksNext Article
DNB Publishes Insurance and Banking NewslettersRelated Articles
EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
FASB Proposes to Delay Implementation of Insurance Contracts Standard
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
BCBS and FSB Set Out Recommendations for Benchmark Transition
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
IAIS Sets Out Recommendations for Benchmark Transition for Insurers
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
ESMA Updates Reporting Manual on European Single Electronic Format
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).
EBA Calls on Resolution Authorities to Consider Impact of COVID Crisis
EBA published a statement on resolution planning in light of the COVID-19 pandemic.
ECB Guideline on Materiality Threshold for Credit Obligations Past Due
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.
FED Temporarily Revises FR Y-14 With Respect to PPP and CARES Act
FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
