IMF on Implications of Fintech for Regulations in Financial Sector
IMF published a discussion note that reviews developments in fintech and examines the impact of these developments on cross-border payments and regulations in the financial sector. The note also highlights the importance of international cooperation.
The note sets out an economic framework for thinking through the channels by which fintech might offer solutions that respond to consumer needs for trust, security, privacy, and better services; change the competitive landscape; and affect regulation. It combines a broad discussion of trends across financial services, with a focus on cross-border payments and the impact of distributed ledger technology (DLT). It has been found that boundaries among different types of service providers are blurring; barriers to entry are changing; and improvements in cross-border payments are likely. The note argues that regulatory authorities need to carefully balance efficiency and stability trade-offs in the face of rapid changes and to ensure that trust is maintained in an evolving financial system. They need to be assured that risks to stability and integrity––including from cyber-attacks, money laundering, and terrorism financing––can be effectively managed without stifling innovation.
The discussion note of IMF states that standards will need to be developed to ensure the integrity of data, algorithms, and platforms. Policy options to support open networks could be considered. In doing so, central banks may need to assess costs and benefits of increasing access to their settlement systems or offering digital national currencies. The note also emphasizes that the existing legal principles need to be modernized and new legal rules need to be developed to clarify rights and obligations within the new global financial landscape. With the blurring of boundaries among entities, activities, and jurisdictions, policymakers need to consider implications for common standards and legal principles, to the extent that they align with national priorities. Therefore, international cooperation will be essential and IMF is well-placed to play a significant role in this area.
Related Link: Discussion Note on Fintech (PDF)
Keywords: International, IMF, Banking, Insurance, Securities, Fintech, DLT, Regtech
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