Mark Carney, the Governor of the Bank of England and Chair of
the Financial Stability Board, has warned of a likely increase in
regulation for Fintech firms due to the "systemic risks"
they pose to the banking sector and the wider economy. Speaking at
the Deutsche Bundesbank G20 conference, Mr. Carney noted that
"the history of financial innovation is littered with examples
that led to early booms, growing unintended consequences, and
Fintech has been instrumental in revolutionising the financial
markets in recent years. There has been widespread investment by
many banks in blockchain, the distributed ledger technology that
underpins the digital currency Bitcoin. Many banks are looking at
the application of blockchain to transactional systems as well as
anti-money laundering, by enabling encrypted KYC data to be shared
among banks in near real-time, while maintaining a historical
record of all documents shared and changes made.
Carney warned that the rise of blockchain technology was being
watched closely by the FSB and that "fintech innovations, such
as distributed ledgers, will need to meet the highest standards of
resilience, reliability, privacy and scalability."
Carney accepted that peer-to peer lending (also known as P2P,
crowdlending or loan-based crowdfunding), which represents about
14% of new lending to small businesses in the UK, "does not,
for now, appear to pose material systemic risks". This might
reflect the fact that P2P is already regulated by the Financial
Conduct Authority and is in line with the UK government's
introduction last April of the new Innovative Finance ISA, which
enables retail investors to hold P2P investments in a tax-free
wrapper. However, P2P lending, which is regulated by the FCA, is
likely to remain on the regulatory radar for some time to come;
shortly before the launch of the Innovative Finance ISA, Lord
Turner, the former head of the FCA, accused P2P platforms of not
doing proper checks on their borrowers.
Carney also suggested that new risks could arise in relation to
robo-advice if robo-advisers or high-frequency traders have a high
correlation with each other, leading to "flash crash"
situations. The FCA recently established an automated advice unit,
to help ensure that robo-advice achieves the same the same outcomes
for consumers as face-to-face advice, while stimulating a more
engaging and cost-effective market.
The likelihood of increased regulation underlies the need for
Fintech firms to ensure they understand their regulatory
obligations and engage as soon as possible with the regulator in
order to influence upcoming changes and ensure they reflect the
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The European Commission's Regulation on indices used as financial benchmarks in financial instruments and financial contracts forms part of the EU's response to a series of high profile investigations in recent years...
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