Bank of England’s Carney sees risks as fintech booms
The fast-growing financial technology sector could hold big “systemic risks” for the banking sector and the broader economy which need to be addressed by bank regulators around the world, Bank of England Governor Mark Carney said on Wednesday.
Speaking at a conference in Germany organised by the country’s central bank, Carney said financial innovation could reduce costs and improve efficiency. But it could also pose risks to the stability of bank funding, credit quality and even the broader economy.
Carney said authorities had to focus more intensely on regulation and prudential requirements and ensure a “more disciplined management of operational and cyber risks”.
The Financial Stability Board (FSB), which pools bank regulators from around the world, is assessing how suitable existing rules are for addressing “fintech” risks and would report its findings to Group of 20 leaders in July, Carney said.
“The challenge for policymakers is to ensure that fintech develops in a way that maximises the opportunities and minimises the risks for society,” Carney said in his speech.
“After all, the history of financial innovation is littered with examples that led to early booms, growing unintended consequences, and eventual busts.”
Carney told the conference that he had been a bank teller while he was a university student in Canada, accepting customer deposits and paying out withdrawals. It was this same “front line” of the banking sector that was now being impacted by fintech, he said.
Fintech firms typically use advances in technology to provide cheap and easy-to-access services, from transfers and trading to crowdfunding, operating largely outside of banking regulations.
The potential risks from the nascent sector were not limited to financial stability, Carney said, but also had a bearing on broader issues such as money laundering, terrorism financing and data protection.
He said a new supervisory approach could include “regulatory sandboxes”, such as the one already set up by Britain’s Financial Conduct Authority which allows start-ups to test products under regulatory supervision.
Carney’s comments echoed those made at the same conference by the head of Germany’s central bank, Jens Weidmann, who said fintech could threaten financial stability and that it was important that authorities had access to reliable data in order to be able to assess the risks.
Calling London the “world’s leading fintech centre”, Carney said existing technologies such as mobile phones, the Internet, high-speed computing and machine learning could help enable rapid changes in finance, and that fintech’s achievements so far were “impressive”.
But he also warned against excessive hype.
“Where are we along the cycle from the technology trigger to the ‘peak of inflated expectations’ and the trough of disillusionment? Will Fintech change the world as we know it? Is there something new under the sun?”