Balancing Fintech Opportunities and Risks

IMF News, June 10, 2019

Source details

Remarks by IMF Deputy Managing Director Tao Zhang delivered in Vilnius, Lithuania on June 10, 2019.
Technological changes have driven rapid advances in financial technology (fintech) that transform the economic and financial landscape.
Smartphones today have more processing power than “Deep Blue”—the supercomputer that beat chess legend Gary Kasparov in the late 1990s.
Data stored on smartphones would have required at least a dozen cartons of floppy disks twenty years ago.

Fintech can support productivity and growth by strengthening financial development, inclusion, and efficiency.
Expected to promote competition in the financial sector, particularly in payments clearing and settlement.
Helping to expand financial inclusion.
Regional examples of opportunity:
- Africa: leader in mobile money as a driver for greater financial inclusion.
- Asia: significant advances in nearly every aspect of fintech.
- Europe: fintech would mainly affect the intensive margin of the provision of financial services given already high levels of financial development and inclusion.

Fintech raises potential risks to consumers and investors and, more broadly, to financial stability and integrity.
Perception that monitoring is still limited and largely confined to activities and entities in the regulatory perimeter.
Widely acknowledged gaps in the legal framework and the need to modernize data governance frameworks.
Common concerns identified include:
- Cybersecurity
- Money laundering (AML/CFT)
- Payment services
Need for greater international cooperation, particularly on:
- Cyber security and AML/CFT risks
- Development of legal, regulatory and supervisory frameworks
- Payment and securities settlement systems
- Cross-border payments

The Fund and the World Bank launched the Bali Fintech Agenda last fall to bring together and advance key issues for policymakers and the international community.
Ongoing work includes a new study to better understand how countries are addressing fintech issues; early conclusions point to:
- A common concern about cybersecurity, money laundering and payment services
- A need for greater international cooperation in fintech
Warning against fragmentation when countries develop isolated national approaches; technology and financial misconduct "know no borders."

The IMF’s unique position and universal membership enable it to play a key role in fostering international cooperation on fintech issues.
The Bali Fintech Agenda is a vehicle for advancing high-level considerations and promoting coordinated policy frameworks.
This conference (Vilnius) is presented as an opportunity to translate high-level considerations into the development of a vibrant fintech community and appropriate policy frameworks.

Emphasize greater international cooperation on cyber security, money laundering risks, legal/regulatory/supervisory frameworks, and payment and securities settlement systems.
Avoid fragmented national approaches; favor coordinated international responses.
Encourage policies that leverage fintech to provide opportunities for all citizens, addressing demographic challenges and talent retention—illustrated by Lithuania’s experience.
Implicit recommendation: continue proactive regulatory approaches while fostering innovation (licensing reforms, sandboxes, RegTech, open banking, payment system access).

Remarks by IMF Deputy Managing Director Tao Zhang, Vilnius, Lithuania, June 10, 2019.