IMF warns fintechs can pose challenges to regulators
An International Monetary Fund (IMF) report has said that fast-growing fintechs may pose challenges to regulators due to “regulatory arbitrage”.
The global financial institution noted the increased competition that fintechs bring to the banking sector but warned that issues can occur when they move or set up operations in less-regulated sectors and regions.
This is known as regulatory arbitrage and can require supervisory and regulatory action, including better consumer and investor protection, the IMF said in its global financial stability report.
Antonio Garcia Pascual and Fabio Natalucci, the authors of the report, said that policies which target both fintech firms and traditional banks proportionately are needed.
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“Technology sometimes moves at a dizzying pace,” they said.
“When it comes to innovation in financial activities, often referred to as fintech, the world is seeing major advances. For banks, fintech disrupts core financial services and pushes them to innovate to remain relevant. For consumers, it means potentially wider access to better services.
“Such changes also raise the stakes for regulators and supervisors – while most individual fintech firms are still small, they can scale up very rapidly across both riskier clients and business segments than traditional lenders…
“Policies that target both fintech firms and traditional banks proportionately are needed. This way, the opportunities that fintech offers are fostered, while risks are contained…
“Supervisory authorities should also encourage robust governance, including industry codes and self-regulatory organisations. These entities could provide an effective conduit for regulatory oversight.”
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