FSB Report Examines Financial Stability Implications of Fintech
FSB published a report that assesses fintech-related market developments and their potential implications for financial stability. The report assesses the fintech landscape, including market concentration of third-party providers, and provides case studies on fintech credit and payments services. The report offers an overall conclusion on the financial stability implications of fintech developments, along with the possible actions from FSB, BCBS, and IOSCO. Additionally, the Annexes (2,3, and 4) to the report examine fintech developments in China.
The report establishes that technological innovation holds great promise for the provision of financial services, with the potential to increase market access, the range of product offerings, and convenience, while lowering costs to clients. New entrants into the financial services space, including fintech firms and large, established technology companies (bigtech), could materially alter the universe of financial services providers. Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system. However, heightened competition could also put pressure on financial institutions’ profitability and this could lead to additional risk-taking among incumbents in an effort to maintain margins. Moreover, there could be new implications for financial stability from bigtech in finance and greater third-party dependencies.
As per the FSB analysis, the following are the key findings on the link between technological innovation and market structure:
-
To date, the relationship between incumbent financial institutions and fintech firms appears to be largely complementary and cooperative.
-
The competitive impact of bigtech may be greater than that of fintech firms. Bigtech firms typically have large, established customer networks and enjoy name recognition and trust.
-
For core operations, reliance by financial institutions on third-party data service providers (for example, data provision, cloud storage and analytics, and physical connectivity) is estimated to be low at present. However, this warrants ongoing attention from authorities.
BCBS notes that, although most supervisors have some reach over third-party providers—either directly or through contractual arrangements—the majority of supervisors indicate that they supervise third-party providers only in limited cases and have no formal structures in place to do so regularly. Particular attention is being devoted to the third-party dependencies issue, including by the BCBS and IOSCO. Going forward, the FSB Financial Innovation Network (FIN) is planning on, in cooperation with other groups, further exploring third-party dependencies in cloud services and single point of failure risks. Specifically, the FIN is seeking to better understand the market for cloud services for financial institutions (rather than for all clients), including how they manage lock-in risk and cross-border issues. Moreover, it is monitoring the activities of bigtech in finance, including cross-border activities.
Related Links
Keywords: International, Banking, Insurance, Securities, Fintech, Financial Stability, Bigtech, Market Structure, FSB
Next Article
IAIS Publishes Newsletter for February 2020Related 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.
