FinTech ‘could step outside regulatory perimeter’

While FinTech could help increase competition in financial services, some of the new solutions might also lead to the migration of activity outside the perimeter of prudential regulation.

This was the view of Dave Ramsden, deputy governor for markets and banking at the Bank of England (BoE), speaking at yesterday’s Innovate Finance Global Summit in London.

The continued: “So it is important that we analyse the implications of any such migrations for financial stability as well as the impact on, and strategic response of, the banks and insurers that we supervise through the PRA [Prudential Regulation Authority].

“This will be an important area of work for the Fintech Hub, working with supervisory colleagues in the PRA, in the coming months,” he added.

Ramsden told delegates that the wave of innovation will intensify in the coming years, as FinTech enables new players and business models to enter the market.

“This is increasing competition, helping meet unfulfilled customer needs, reducing inefficiencies and changing the way institutions provide - and consumers and businesses use - financial services,” he stated, adding: “It could transform the structure of the financial sector, with implications for customers, firms and regulators.”

FinTech is one of the BoE’s seven strategic priorities for 2019.

Earlier in the week, at the same conference, Ramsden’s boss and BoE governor Mark Carney promised that the central bank and its regulator would try to keep pace with FinTech innovation, noting improvements to payments infrastructure and automation of access to its rulebook.

Ramsden meanwhile concentrated on the unbundling of traditional financial services activities into individual core functions, such as settling payments, performing maturity transformation and allocating capital.

“We are already seeing the benefits of unbundling – established and challenger banks alike are deploying sophisticated mobile apps that allow consumers to manage their finances, initiate payments and help with budgeting.

“Insurance startups are responding to the growth of the gig economy by offering highly personalised/tailored insurance products that combine traditional home and/or motor insurance with business coverage for temporary use,” he commented.

Ramsden also used his speech to touch on artificial intelligence (AI), something he said would “affect all aspects of the bank’s mission, from the future behaviour of the labour market, through its effects on employment, productivity and wages, to the future nature of finance, through its effects on customer service, trading and risk management”.

He pointed out that the BoE’s Fintech Hub, together with the Financial Conduct Authority, has just conducted the first survey of regulated firms’ applications of AI.

“The survey aims to establish a consistent picture of the state of deployment and readiness within financial services,” explained Ramsden. “This includes understanding how advanced firms are in their deployment of AI and what specific business lines they are applying it to.”

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