BIS - Regulating Fintech: Many Approaches for Many Challenges

New tech-savvy players are entering the financial market left and right. The way they provide financial services would not be possible without the advances in financial technology we have witnessed in recent years. But traditional financial institutions are also increasingly incorporating innovative elements into their business models.

The jury is still out as to how much fintech will change the market structure in financial services (FSB 2019). What is clear is that it brings opportunities – it may increase efficiency in delivering financial services, widen their range, increase competition and promote financial inclusion – but also comes with potential risks to consumers and investors and, more broadly, to financial stability and integrity.

The impact of fintech is not only being felt by the private sector but by financial authorities too. They are asked not to stifle innovation and to fully embrace the promise of fintech. Yet they need to act within their mandate, which is to keep the financial system safe and sound, and protect consumers from harm.

In a recent paper, we take stock of the policy responses to fintech developments in about 30 jurisdictions around the globe (Ehrentraud et al (2020)), and discuss the challenges and policy trade-offs financial authorities face. Our goal is to make sense of the vast fintech space from a regulatory perspective.

For this purpose, building on the work by global standard-setting bodies and other international organisations, we propose a novel conceptual framework, referred to as the fintech tree (Figure 1). It distinguishes three categories: fintech activities, enabling technologies and policy enablers.

Figure 1: Fintech tree: a taxonomy of the fintech environment

Source: FSI staff.

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