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
DNB Releases Multiple Reporting Updates for BanksRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
