Regulating Digital Bank And Fintech Financing

The Bank of International Settlements (BIS) came out with another white paper last week (read the previous one on the rise of central bank digital currencies here). This one focused upon:

Regulating fintech financing: digital banks and fintech platforms

Interesting stuff. Here’s the executive summary:

This paper explores how fintech financing is regulated. New technology-enabled business models related to deposit-taking, credit intermediation and capital-raising have emerged. These are digital banking, fintech balance sheet lending and crowdfunding platforms (the latter two are referred to as fintech platform financing). In this paper, we provide a cross-country overview of the regulatory requirements for these fintech activities in 30 jurisdictions. The paper is based on an extensive desktop review of regulations and related documents, complemented by responses to an FSI survey conducted in early 2019.

The proliferation of new technology-enabled business models has raised questions about the regulatory perimeter. Authorities are assessing whether their existing regulatory framework needs to be adjusted. Their response will likely depend on:

  • how they see potential risks to consumers and investors, financial stability and market integrity;
  • their assessment of how these new activities might benefit society in terms of strengthening financial development, inclusion and efficiency; and
  • how risks are dealt with under the existing framework and whether opportunities for regulatory arbitrage have emerged.

The overall challenge for authorities is to maximise the benefits of fintech innovations while mitigating potential risks for the financial system.

For digital banking, most jurisdictions apply existing banking laws and regulations to banks within their remit, regardless of the technology they apply. From these jurisdictions, a few have put in place initiatives that are intended to ensure that new banks find it easier to enter the market by allowing them time to complete their build-out or to meet the requirements of the prudential framework in full.

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