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Fintech in Brief: FSB to Examine Technology’s Financial Stability Implications

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In March 28 remarks, Randal K. Quarles, Federal Reserve Board Vice Chair for Supervision, speaking as Chair of the Financial Stability Board (“FSB”), announced that the FSB’s 2019 Work Plan would include a review of the financial stability implications of Fintech. The FSB is an international group of member state central bankers, finance ministers, and regulators established in April 2009 in response to the global financial crisis as a successor to the Financial Stability Forum.

Quarles highlighted the many claims of the significant benefits associated with Fintechs, saying Fintechs have “the power and potential to reduce economic inequality, increase financial inclusion, and boost economic growth,” citing as examples mobile wallets in Kenya, online mortgage lenders in the U.S., and the world’s largest money market fund sponsored by an affiliate of Alibaba. In addition, he noted that Fintech “could potentially reduce financial volatility and vulnerabilities.”

Along with Fintech’s potential, he also noted that monitoring and analyzing the financial stability implications of financial innovation are a part of the FSB’s mandate “to identify and address vulnerabilities in the global financial system.” His remarks highlighted that, in furtherance of that mandate, the FSB has been examining the potential effects from (i) the entry of large technology firms (e.g., Amazon, Apple, Tencent, Baidu) into the financial services industry and (ii) the expansion in decentralized financial technologies, which he described as “technologies that connect financial market participants directly without an intermediary.” Although Quarles did not describe the FSB’s plan in detail, he noted that both developments will bring with them “novel fragilities,” and that “some of [the issues raised] may touch on financial stability.” As a result, Quarles emphasized the FSB’s plan to fully embrace financial innovation while closely monitoring for financial stability risk.

The FSB’s examination into these areas is potentially significant and reflects earlier work that assessed Fintechs’ inroads into credit provision and payments, the potential competitive and market structure impacts of Fintech, and the increased reliance on third-party technology providers. More research, guidance, and policymaking on the financial stability implications of technology and innovation can be expected from the FSB in the months and years ahead. Although the FSB’s views and pronouncements are not binding, it has significant influence with financial regulatory policy makers in member states, including the United States. As such, the views of the FSB may help shape how U.S. regulatory agencies monitor, supervise, and regulate Fintech going forward.

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