Opening Remarks by Deputy Managing Director Bo Li: Managing Technology in Finance: Global Approaches for the Digital Age
IMF News, November 10, 2021
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- Published: November 10, 2021
Overview and framing
- Technological change is a long-standing driver of progress in finance, from double-entry book-keeping to ATMs and modern payment systems.
- The digital age has accelerated trends through:
- Massive capture of detailed data from activities, transactions, and behaviors as the Internet Of Things and mobile connectivity have expanded.
- Huge increases in computing power enabling Artificial Intelligence ("AI") to perform tasks that normally require human intelligence.
- Frequent incidents of hacks and resulting loss of service and personal data reported in the news.
- Core regulatory challenge: how to reap benefits (financial inclusion, efficiency, risk management, oversight) while managing financial stability and integrity risks.
Findings from IMF workstreams (three recent papers)
- General finding:
- Strong complementarities exist across data, AI, and cyber risk issues, pointing to the need for adapted policy approaches and enhanced cross-border cooperation.
- First workstream — digital economy and data:
- Data is a valuable, globally portable good.
- Cross-border data movement requires coherent policies that build trust.
- Absence of global principles risks deepening digital fault lines and isolating massive data pools, which would be especially costly for smaller and lower-income countries.
- Recent G7 announcements of key principles for cross-border movement of data are noted as a positive initial step.
- Benefits: data can power open finance and AI to boost productivity, growth, employment, and finance.
- Risks: data capture without effective consent by large platforms can create new monopolies and stability risks; balancing individual privacy with protection from cyber attacks is challenging.
- Implication: these challenges affect growth, stability, and the international system, requiring global cooperation.
- Second workstream — AI and machine learning:
- Rapid and far-reaching adoption in finance can:
- Increase efficiency.
- Improve client experience.
- Strengthen risk management.
- Support regulators in prudential oversight and implementation of monetary and macroprudential policies.
- Enable applications such as more efficient supply chains and lending to previously unbanked small businesses.
- Risks include opacity, bias, and potential new sources of systemic risk from greater interconnectedness.
- Policymakers need to confront these issues; the full extent of strengths and weaknesses is not yet completely understood.
- Third workstream — cyber risk:
- Expansion of data and digital platforms increases opportunities for malicious cyber activity and widens the attack surface, especially in finance.
- Recent prominence of supply chain attacks and ransomware.
- Cyber risk is among the top concerns for governments, businesses, and consumers.
- In finance, threats to data confidentiality and integrity and to the smooth functioning of information systems pose threats to financial stability.
- Financial systems vary in readiness to manage cyber attacks; international response is fragmented.
- IMF analysis has identified major gaps which, if addressed, could considerably reduce cyber risk and help safeguard global financial stability.
Policy implications and recommendations (implicit and explicit)
- Adapt domestic and international policy frameworks to address:
- Data governance and cross-border data flows.
- Regulation and oversight of AI and machine learning in financial services.
- Cybersecurity resilience across financial systems and supply chains.
- Promote enhanced cross-border cooperation among countries and regulators to address risks that transcend national boundaries.
- Build capacity in jurisdictions, with attention to smaller and lower-income countries disproportionately affected by data isolation and weak cyber defenses.
- Consider global principles for managing data to prevent digital fragmentation and safeguard inclusion, competition, privacy, and financial stability.
Closing
- The speaker looks forward to discussing these topics with the panel of experts during the event.
Source: Opening Remarks by Bo Li, Deputy Managing Director, "Managing Technology in Finance: Global Approaches for the Digital Age", November 10, 2021.