A Balanced Approach to Fintech Regulation and Innovation—at Home and Abroad

IMF News, April 1, 2019

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Canonical URL: A Balanced Approach to Fintech Regulation and Innovation—at Home and Abroad

Occasion: Opening Remarks for the 2nd IMF Fintech Roundtable.
Speaker: IMF First Deputy Managing Director David Lipton.
Date: April 1, 2019.
Central framing: balance between promoting fintech-driven innovation and preserving financial sector stability, including the need to align cross-border regulatory approaches.

The IMF/World Bank membership approved the Bali Fintech Agenda at the Annual Meetings in October.
The Bali Fintech Agenda contains 12 elements that frame policy challenges related to fintech.
Emphasis: while discussion often focuses on risks and resilience, the agenda highlights the key word “innovation.”

Fintech change spans online payments, peer-to-peer lending, use of artificial intelligence in investment advice, and platform-based distribution models.
Example findings cited:
- The IMF’s African Department shows the 45 countries of Sub-Saharan Africa lead the world in mobile money accounts in per capita terms, and in mobile transactions as a percentage of GDP—almost 10 percent.
- The Asia-Pacific Department estimates China now accounts for about 40 percent of global e-commerce transactions; a decade ago that was only 1 percent.
Observed impacts: potential to reduce costs and transaction times, boost growth, lift living standards, and enable creation of new businesses and industries.

Key risks noted: competition concerns, market power of technology giants, cyber-risks, social disruptions, data collection and use, and taxation of IT firms.
The IMF is addressing stability risks by:
- Convening regional events to discuss the Bali Agenda.
- Encouraging ongoing dialogue among entrepreneurs, inventors, investors, and regulators.
- Expanding understanding through regular policy consultations, financial sector assessment programs, and engagement with industry and standard-setting bodies.
Multilateral cooperation is considered essential to manage these risks.

Emerging forces of fragmentation could weaken multilateral cooperation:
- Examples include trade disputes, policies promoting national champions (e.g., the battle over 5G networks), and potential regulatory races to the bottom.
Policy actions in one country can have spillovers; both action and inaction carry cross-border implications.
Risk highlighted: fragmentation into competing clubs could exacerbate common vulnerabilities and threats.

Dual balancing act required:
- Between promoting innovation while preserving financial stability.
- Between acting in the national interest while avoiding adverse spillovers to other countries.
Recommended approaches:
- Seek solutions through collaboration and multilateral dialogue, such as the roundtable format.
- Re-evaluate and, where necessary, strengthen multilateral rules of the game.
- Continue experimental regulatory approaches (e.g., regulatory sandboxes, exploration of central bank cybercurrencies) to encompass both innovation and oversight.
Charge to participants: keep the delicate balancing act in mind to maximize benefits of new technologies for citizens globally.

Opening Remarks for the 2nd IMF Fintech Roundtable — David Lipton, April 1, 2019.