Canada: Financial Stability Board Delivers Report On Financial Stability Implications Of Decentralised Financial Technologies

On June 6, 2019, the Financial Stability Board (the "FSB"), an international body that coordinates the work of national financial authorities, published a report on "Decentralised financial technologies" in response to a request by the Japanese presidency of the G20. The report, which was delivered to G20 finance ministers and central bank governors for their June 8-9 meeting in Fukuoka, Japan, considers the financial stability, regulatory and governance implications of the use of decentralised financial technologies ("Fintech") such as those involving distributed ledger technology ("DLT") and online peer-to-peer ("P2P") platforms.

Applications and Potential Benefits of Decentralised Fintech

The FSB report identifies three different types of financial services decentralisation:

  • Decentralisation of decision-making, which consists in moving away from a single trusted financial intermediary towards systems involving a broad set of users making financial decisions;
  • Decentralisation of risk-taking, which involves shifting away from the retention of credit and liquidity risk on the balance sheets of traditional financial intermediaries; and
  • Decentralisation of record-keeping, which entails moving away from centrally held data and records towards systems allowing the storage and access to data through an extended variety of users.

In the FSB's assessment, technological applications to financial services which display all three forms of decentralisation seem unlikely to achieve an economically significant scale in the near term. The report notes that the majority of existing applications, instead, retain one or two of these forms of centralisation, but that there is nonetheless the potential for greater decentralisation in the future.

The FSB points out the distinction to be made between decentralised services and decentralised technologies. In fact, technologies that underlie decentralised provision of financial services need not, themselves, be decentralised. The large-scale adoption of some technologies may, in fact, require maintaining some degree of centralisation. Nonetheless, the increased implementation of such decentralised technologies is supported by existing and forthcoming ancillary technologies such as artificial intelligence, 5G cellular communications, the Internet of Things and edge computing, which can lower the barriers to functions traditionally carried by financial intermediaries.

The report focuses on DLT systems and P2P lending platforms, two technologies that are currently enabling financial services to be provided in a more decentralised manner. DLT enables the decentralisation of record-keeping by removing the need for a central ledger in which financial transactions are recorded. P2P platforms allow for the decentralisation of risk-taking and decision-making by providing direct interaction between users, yet avoiding the search costs that are otherwise incurred in the absence of a centralised financial intermediary such as a bank or insurance company.

The financial services that can be supported by DLT systems and P2P lending platforms include trade finance, capital markets, payments and settlements as well as lending services. DLT might benefit to trade finance by enabling participants from different trade sectors to interact and share information in an ascertainable way, hence allowing verification of information to take place in a decentralised manner and forgoing the need for financial intermediaries. The tokenisation of securities using DLT has the potential to further decentralise capital markets. Foreign exchange platforms are already using P2P technologies to directly match end-users, therefore complementing – and in some places replacing – traditional interbank payment systems for retail cross-border payments. Online lending platforms can make lending decisions without relying on conventional financial intermediaries by carrying out credit scoring on a granular basis, sometimes making use of novel sources of data on borrowers including social networks. The rate at which these technologies are adopted will depend on the efficiency gains offered by decentralised structures.

The application of decentralised financial technologies may reduce some of the financial stability risks associated with traditional financial institutions and intermediaries. For instance, the growth and dispersion of financial service providers could increase diversity among service providers in the financial system and reduce the systemic importance of some existing service providers. The use of decentralised financial technologies may also curtail operational risks: if appropriately secure, decentralised systems may be more resilient to cyber risks than highly centralised systems, particularly in terms of the integrity of their record-keeping and service availability.

Financial Stability and Regulatory Risks

The FSB report identifies several financial stability risks associated with decentralised Fintech, including:

  • New forms of concentration risks, considering that many activities in larger DLT systems, such as ownership of assets, control over source code and operation of the infrastructure, remain concentrated in a relatively small set of persons or entities;
  • Greater procyclicality in the supply of credit, as P2P lending platforms may exhibit larger and sharper swings in their provision of credit than existing financial institutions;
  • Diffused and unclear liability and accountability of participants, which may arise in a more decentralised financial system where participants can sometimes remain anonymous; and
  • Diminished responsiveness to official sector interventions, such as the offering of liquidity facilities that have traditionally been granted by central banks to regulated financial institutions.

Loss of confidence in financial markets which may be caused by the cumulative effects of the above-mentioned risks may also aggravate threats to financial stability.

As examined in the report, the significant use of decentralised financial technologies may have implications on financial regulation and governance insofar as it affects the effectiveness and enforceability of current regulatory frameworks, particularly those focused on the presence of centralised financial entities. It may also increase jurisdictional uncertainty considering the increased ease with which providers of financial services are able to change their locations and migrate between jurisdictions. A more decentralised financial system may reinforce the importance of an activity-based approach to regulation, particularly where it delivers financial services that are difficult to link to specific entities or jurisdictions.

Recommendations to G20 Financial Authorities

The FSB recommends that G20 authorities address the applicability of current financial regulation to decentralised financial services and products, assess the ability of Fintech to fill gaps in financial supervisory systems, and apply regulation to decentralised financial services proportionally to the risks they pose and consistently across jurisdictions, in spite of certain jurisdictions' technology-neutral approach to financial regulation. In so doing, regulators ought to establish early liaison with a wide group of stakeholders in order to ensure that regulatory objectives are considered in the initial design of technical protocols and to limit the emergence of unforeseen technological complications at later stages.

To view the original article click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions