‘Balance Risks and Innovation’, the new call of duty for Basel Committee regulators investigating Fintech implications

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One thing seems to be certain in the banking and financial services industry – Fintech is fast-changing the landscape like never before.

Banks and related institutions around the world are rapidly adapting to new operating models and platforms built on several Fintech programs, with the result that addressing issues of risks and yet, promoting innovation in banking services have become the latest challenge for the industry regulators.

The Basel Committee on Banking Supervision says that new models mean that banks and regulators need to be aware of new supervisory issues. In its Sound Practices paper on the implications of Fintech, it has identified 10 observations and made related recommendations. .

Market observers are still divided on the impact that Fintech will have on banks with some predicting that up to 40% of revenues could be at risk over the next 10 years and others believing that that established players will simply absorb the new competitors, thereby actually boosting their own efficiency.

What is not in doubt is that technological innovation and changing customer expectations mean that banks will find it increasingly difficult to maintain current operating models.

It has been noted that while the nature and scope of banking risks as traditionally understood may change, regulators need to ensure that they don’t inhibit beneficial innovation. The Committee highlights strategic and profitability risks, operational, cyber and compliance risks as the key Fintech-related concerns.

The paper also calls on banks and regulators to consider the implications of the use of innovative enabling technologies, as well as the growing use of third parties, via outsourcing and partnerships. For regulators, it calls for cross-sectoral cooperation between supervisors and other relevant authorities, international cooperation, and the use of innovative supervisory technologies.

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