FSB warns of third-party FinTech risk

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Financial Stability Board | Jun 27, 2017

Technology-enabled innovation in financial services, or FinTech, is growing rapidly. As a result, the FSB has been analysing the potential financial stability implications from FinTech with a view toward identifying supervisory and regulatory issues that merit authorities’ attention.

This report identifies 10 areas that merit authorities’ attention, of which three are seen as priorities for international collaboration:

  • managing operational risk from third-party service providers,
  • mitigating cyber risks; and
  • monitoring macrofinancial risks that could emerge as FinTech activities increase.

Addressing these priority areas is seen as essential to supporting authorities’ efforts to safeguard financial stability while fostering more inclusive and sustainable finance.

See:  Competition Bureau suggests Canadian FinTech sector’s slow growth due to regulation, consumer complacency

While there are currently no compelling financial stability risks from emerging FinTech innovations given the relatively small size of the FinTech relative to the financial system, experience shows that they can emerge quickly if left unchecked.

To draw out the supervisory and regulatory issues from a financial stability perspective of FinTech, the FSB developed a framework that defines the scope of FinTech activities to be covered, classified by their primary economic functions; therefore the analysis is technology neutral. Applying the framework to various case studies of FinTech activities helped to draw out the potential benefits and risks from FinTech. Potential benefits identified in the report include decentralisation and increased intermediation by non-financial entities; greater efficiency, transparency, competition and resilience of the financial system; and greater financial inclusion and economic growth. Potential risks include institution-specific micro-financial risks that could emerge and system-wide macro-financial risks for instance increased connectedness and correlation risk. The FSB will continue to monitor and discuss the evolution of the potential financial stability implications of FinTech developments.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

 

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