Speech

A Balanced Approach to Fintech Regulation and Innovation—at Home and Abroad

April 1, 2019

Good morning. Thank you for joining us today for the second IMF Fintech Roundtable. Or, in the spirit of the collaboration and innovation that motivates us, it might be more appropriate to call this meeting the “IMF Fintech Regulatory Sandbox.”

It has been almost exactly a year since we first gathered here to begin these exchanges on the critical policy challenge of the digital revolution that is rapidly transforming the universe of finance. This has meant balancing the quest for financial sector stability with the need also to allow room for the fintech experimentation that is deepening financial inclusion and raising productivity. And if finding that right balance within each country isn’t enough, we also must find a way to align the emerging approaches to cross-border fintech regulation. This is one of the key reasons we are here today and a point I will return to in a moment.

Over the next two days you will delve into many of the key challenges we are all facing. Tobias is about to lay out the nuts and bolts of these issues, so I’d like to take a few minutes to present the 30,000 foot view.

The Bali Fintech Agenda

As you know, our membership approved the Bali Fintech Agenda at the IMF/World Bank Annual Meetings in October. This document contains 12 elements that frame the policy challenges I have just described. The discussion of that agenda inevitably has focused on risks and ensuring financial resilience. But we should not give short shrift to what I consider the key word in the agenda: “innovation.”

The accelerating change in the fintech realm is taking place across the full scope of financial services: online payments, peer-to-peer lending, the use of artificial intelligence in investment advice, the growth of platform-based distribution models. Some might rightly describe this technological change as disruptive, but it is also creating opportunities on a broad scale. So far, we are seeing more reaping of opportunities than disruption.

Here are just two examples:

• We are all familiar with the rapid spread of mobile banking in developing countries. The IMF’s African Department just published a paper showing that the 45 countries of Sub-Saharan Africa lead the world in mobile money accounts in per capita terms, and in mobile transactions as a percentage of GDP—almost 10 percent.
• Meanwhile, our Asia-Pacific Department has estimated that China now accounts for about 40 percent of global e-commerce transactions; a decade ago that was only 1 percent. And as that avalanche of online payments has gathered steam, the use of cash in many Chinese cities has virtually disappeared.

These changes, multiplied across the globe, hold the potential for reducing costs and transaction times, boosting growth and lifting living standards as new businesses and industries are created. This is a rising tide that is unlikely to recede.

It is important to recognize that many regulators—including some of you here today—are engaged in experiments aimed at encompassing both innovation and oversight. Witness the work on central bank cybercurrencies, and the regulatory sandboxes in places as far-ranging as Lithuania and Singapore.

Risks to Financial Sector Stability

But it is also all of our jobs to worry about the risks fintech poses to financial sector stability. The IMF is taking this part of the challenge very seriously as well.

We have convened two regional events to discuss the Bali Agenda, and we are encouraging an ongoing dialogue among entrepreneurs, inventors, investors, and regulators. The Fund is trying to expand our understanding of fintech issues—and to offer what advice we can—through regular policy consultations with our member countries, through our financial sector assessment programs, and by working closely with the industry and people who are in standard-setting bodies.

Many of you are actively engaged in the same process. This multilateral approach is essential.

However, we are also witnessing worrisome changes in the international community that could weaken the spirit of multilateral cooperation and make our task more complex. These forces of fragmentation are evident, for example, in trade disputes; in policies that promote national champions—for example, the battle over 5G networks; and in the potential for a regulatory race to the bottom. These forces of fragmentation have a direct bearing on the issues we are addressing today as international aspects of regulatory harmonization will be implemented in this climate.

Countries facing the challenge of fintech have legitimate concerns about competition, about the market power of technology giants, and the cyber-risks and social disruptions that may accompany rapid technological change. Many countries worry about how data is collected and used; and how IT firms are taxed.

These are issues that need to be discussed in connection with the subject of fintech. But we have to be mindful that our policy actions can also have broad-reaching implications beyond national boundaries when we take action in one country, just as inaction can also lead to spillovers across countries. We need to find the right balance in our policy choices along two dimensions: between promoting innovation while preserving financial stability, and between acting in the national interest while avoiding adverse spillovers to other countries. We need to act together to design new policy frameworks to meet these challenges, or we run the risk that the world and the industry could fragment into competing clubs that, in turn, exacerbate our common vulnerabilities and threats.

The solutions to the problems we face need to be sought through collaboration like today’s gathering—including, in some cases, by re-evaluating the multilateral rules of the game in order to strengthen them. Your discussions today are proof of a common purpose.

I urge you in your discussions today and tomorrow to keep in mind this delicate balancing act. We need to ensure that our actions enable us all together to maximize the benefits of these promising new technologies for the benefit of all our citizens and hope that can be the end point of these discussions.