## Framing the Debate on Fintech: Current Trends and Continuing Policy Concerns

_IMF News, April 1, 2019_

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## Bibliographic details
- Published: April 1, 2019

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### Overview and context
- Remarks by Tobias Adrian, Financial Counsellor and Director of the Monetary and Capital Markets Department, IMF at the IMF Fintech Roundtable, Washington, D.C
- Date: April 1, 2019
- Summit purpose: share insights about the future of financial technologies and the policy issues they raise; follow up on the launch of the “Bali Fintech Agenda.”
- High-level message:
  - Authorities should welcome Fintech for its potential to increase inclusion and efficiency.
  - Successful adoption requires building skills and expertise, educating consumers and investors, and creating enabling foundational infrastructure.
  - Continuous monitoring and active dialogue with industry and international peers are essential to assess emerging risks and form timely policy responses.

### Recent developments highlighted (March headlines and examples)
- Legal and regulatory actions:
  - China’s central bank: “gradually set up a system of rules for the regulation of Fintech… and create a favorable policy environment for Fintech development."
  - Japan: cabinet approved draft amendments to financial instruments and payment services laws to cap leverage in virtual currency margin trading.
  - Mexico: central bank proposed regulations under a new Fintech law to limit cryptocurrency exchanges.
  - Switzerland: Federal Council initiated a consultation to adapt federal law to Distributed Ledger Technology (DLT).
  - Hong Kong: issued its first batch of on-line banking licenses; virtual banks to face the same supervisory requirements as conventional banks.
- Central bank digital currencies (CBDCs):
  - Two central banks — the Eastern Caribbean Central Bank and the Central Bank of the Bahamas — advanced plans to conduct blockchain-based CBDC pilots.
  - The Riksbank of Sweden moved forward with its second interim report into the e-krona.
  - The Bank for International Settlements expressed concerns about potential impact on monetary policy and possible “run risk.”
- Cross-border payments and transfers:
  - Six international banks announced plans to issue “stablecoins” on IBM’s World Wire to enable faster, cheaper remittances/FX transfers for regulated institutions.
  - Western Union partnered with Thunes to enable direct transfers to mobile wallets globally using blockchain technology.
- Payments and Financial Market Infrastructures (FMIs):
  - Deutsche Bundesbank and Deutsche Börse completed performance tests of blockchain-based securities settlement prototypes.
  - Swiss operator SIX Group selected R3’s Corda Enterprise for its digital asset trading, settlement, and custody service.

### Policy implications and recommendations
- Enable and prepare:
  - Build foundational infrastructure: broadband internet, mobile data services.
  - Promote digitization across government and broader service economy.
  - Encourage more efficient payments systems and open, contestable markets to support competition.
  - Promote financial inclusion and development.
- Monitor, engage, and adapt:
  - Maintain ongoing dialogue with industry (innovators and incumbents).
  - Continuously monitor developments to assess risks and enable timely policy responses.
  - Adapt legal and regulatory frameworks to ensure robustness while allowing beneficial innovation.
- Address gaps and emerging risks:
  - Many risks can be addressed by existing frameworks, but new players (non-banks, ICT providers) and cross-sectoral products require adapting prudential regimes and modernizing legal frameworks.
  - Some Fintech business models or products (crowdfunding platforms, e-money, pre-paid cards, crypto assets) could enable circumvention of current controls or be used for criminal purposes, posing threats to financial integrity.
  - Fintech reshapes market segments that transmit monetary policy — central banks and supervisors must assess implications for monetary policy and financial stability.
- Data and operational resilience:
  - Develop robust financial and data infrastructure to support operational resilience and preserve confidence.
  - Address issues: data ownership and privacy, cyber security, operational and concentration risks, business continuity, consumer protection.
- International cooperation:
  - Deepen international dialogue to exchange information and share experiences.
  - IMF and World Bank can assist collective surveillance and capacity building, collaborating with other international bodies to promote global growth and financial stability.

### Regulatory approaches and innovation tools
- Sandboxes and alternatives:
  - About 33 sandboxes exist in advanced economies and Emerging Market and Developing Economies; a few multi-jurisdictional sandboxes aim to promote cross-border harmonization.
  - Growing consensus: sandboxes are not a panacea; it is too early to determine their success.
  - Use of alternative tools is increasing: single points of contact, accelerators, innovation hubs.
- Key regulatory questions posed:
  - How will Fintech regulations evolve?
  - How successful have sandboxes been so far?
  - Where did sandboxes succeed and fail?
  - How useful are sandboxes compared to other instruments?

### Central Bank Digital Currencies (CBDCs)
- Current engagement:
  - “Less than one-quarter of central banks around the world are now actively exploring the possibility of issuing CBDCs, and only four pilots have been reported.”
- Core policy questions:
  - Why consider issuing CBDCs, and under what circumstances should they be issued?
  - What are the design options and their impact?
  - What are the risks to central banks?
- Research sharing:
  - Session planned to present conclusions of in-depth research from three countries that have invested heavily in exploring CBDC issues.

### Payments, DLT, and FMIs — experiments and questions
- Observed trends in retail payments: move toward real-time settlements, flatter structures, continuous operations, and global reach.
- DLT experimentation across FMIs: examples include Jasper I & II (Canada), Khokha (South Africa), Stella I (Euro area and Japan); DLT prototypes for securities settlement and other FMIs.
- Key questions for assessment:
  - What is the scope of current or upcoming DLT for broad adoption?
  - How do DLT systems compare to newer, real-time centralized payments systems (using a cost-benefits analysis)?
  - What are the potential risks?

### Legal frameworks and gaps
- Status:
  - Existing legal frameworks inadequately address many Fintech aspects; diversity in progress and approach to legal reform.
  - Some adaptation achieved for crypto assets and mobile money; less progress on financial-sector private law (payments and securities transfer law, solvency, other concerns).
- Legal questions to be examined:
  - Legal status of novel Fintech concepts (e.g., smart contracts; claims on non-bank entities such as telecom companies providing mobile-initiated value-transfer services).
  - Legal basis for activities tied to technological change (e.g., treatment of crypto-asset balances in a custody service provider’s bankruptcy).
  - Allocation of risk of loss under applicable law (e.g., treatment of operational vulnerabilities in underlying technology).

### Data governance and cybersecurity
- Challenges:
  - Proliferation of data increases its value and raises implications for efficiency, stability, inclusion, and rights.
  - Significant diversity in approaches to data governance: data rights, localization, privacy, international coordination.
  - Recent data breaches highlight cybersecurity risks and common gaps in mapping cyber risks in the financial sector.
- Session focal points:
  - Implications of different data-governance frameworks for market efficiency, access, financial stability, rights to data, portability, interoperability, and protection.
  - How to strengthen cybersecurity to increase resilience of financial systems.

### Roundtable structure and priorities
- Agenda themes for the meeting:
  - The regulatory approach to Fintech
  - Central Bank Digital Currencies
  - Payments and settlement systems
  - Legal frameworks
  - Data governance
- Expected outcomes:
  - Peer-to-peer, in-depth dialogue and information-sharing among IMF member countries.
  - Share national experiences and discuss policy responses in line with the Bali Fintech Agenda.

*Remarks by Tobias Adrian, IMF Fintech Roundtable, April 1, 2019.*

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## References

- [Tobias Adrian](http://www.imf.org/external/np/bio/eng/ta.htm)
- [Canada and the IMF](http://www.imf.org/external/country/CAN/index.htm)
- [South Africa and the IMF](http://www.imf.org/external/country/ZAF/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2019/04/01/sp040119-framing-the-debate-on-fintech-current-trends-and-continuing-policy-concerns_