Opening Remarks by the Deputy Managing Director Bo Li at the Peer-Learning Webinar Series on Digital Money/Technology in Asia and the Pacific

IMF News, May 11, 2023

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Published: May 11, 2023

Overview

Event: Virtual Webinar, Organized by the IMF – Singapore Regional Training Institute (STI).
Date: May 11, 2023.
Purpose: Peer learning on digital money and technology in Asia and the Pacific; highlight policy challenges and share best practices.

Fintech trends highlighted

Fintech is "revolutionizing the delivery of financial services" globally and especially in Asia and the Pacific.
Digital banks (neo-banks) are growing and rely on technologies such as cloud computing and artificial intelligence to provide around-the-clock services.
Nonbank financial institutions, notably BigTech firms, are expanding rapidly into payments, lending, and insurance.
Potential benefits include greater financial inclusion in a region where "hundreds of millions of people are still underbanked" and BigTechs’ ability to leverage big data to create new business models, drive economies of scale, and improve consumer welfare.

Financial stability and systemic risks from BigTech

Rapid pace and scale of BigTech expansion can bring financial stability risks.
Key risk channels:
- Rapid cross-jurisdictional scaling using large client bases.
- Gaps where cross-sectoral regulation is lacking or ineffective.
- Interconnections with traditional banks.
- Dependence on systemically important services such as the cloud or payment infrastructures.
Aggregate effect: scenarios where BigTechs become “too big to fail.”
Regulatory challenges:
- BigTechs are difficult to regulate as banks because they do not generate most revenue from financial activities and are less exposed to credit and liquidity risks than traditional banks.
- Potential for anticompetitive behavior.
- Particular difficulty for emerging and developing economies that need strong regulatory frameworks and enforcement to allow continued innovation.

Policy recommendations and supervisory actions

Near-term priorities:
- Improve disclosure and transparency.
- Strengthen outsourcing requirements.
- Use all available tools of both prudential and conduct regulations to manage risks to consumers, markets, and financial stability.
Longer-term framework:
- Move toward entity-based, group-wide regulation for home authorities.
- Adopt targeted, activities-based regulation for host authorities.
- Aim for a holistic approach to address growing systemic risks.
- Example cited: China has required that certain BigTechs create a holding company for their financial services activities, which can then be subject to prudential and conduct regulation.
Cross-border cooperation:
- International cooperation must underpin any emergent regulatory framework due to the cross-border nature of BigTechs.
- Practical steps to advance cooperation:
- Improving information sharing—both bilaterally and through global and standard-setting bodies.
- Creating supervisory colleges to improve cross-border cooperation.
- Domestic coordination:
- Financial regulatory authorities need coordination among themselves and with other financial sector regulators, competition authorities, and relevant government departments given blurry lines between BigTechs’ financial and nonfinancial activities.

IMF role and capacity development

The IMF aims to "serve as a transmission line of best practices across our membership."
Today’s event is framed as an opportunity to learn lessons from regional policy responses and discuss IMF capacity-building in this fast-growing area.

Opening Remarks by the Deputy Managing Director Bo Li at the Peer-Learning Webinar Series on Digital Money/Technology in Asia and the Pacific — Virtual Webinar, Organized by the IMF – Singapore Regional Training Institute (STI), May 11, 2023.