Weidmann: Uniform regulatory regime needed for fintechs
Speaking at a conference at Schloss Biebrich in Wiesbaden during Germany’s presidency of the Group of Twenty (G20), Bundesbank President Jens Weidmann said a common regulatory approach is needed for fledgling financial technology (fintech) businesses. Fintechs boasting fresh business models and digital solutions such as smartphone apps have made inroads into the financial community, where they are rivalling traditional credit institutions. This, the Bundesbank President explained, means they have the potential to disrupt the market for financial services.
However, there are many countries where these fintech start-ups enjoy greater freedom than traditional players in the financial services sector, and this, Mr Weidmann noted, is an issue that regulators and central bankers need to address.
"Our goal is to draw up a set of joint criteria for regulating fintechs," he stated, adding that it would be wrong for fintechs to base their business models on regulatory loopholes. Using regulation that is too lax as a way of attracting business is a mistake that had already been made before the latest financial crisis, Mr Weidmann cautioned.
"It is important to get a clearer picture of fintechs’ business activities if we are to better understand whether and in what way they might pose a threat to financial stability."
Bundesbank President Jens Weidmann also used the conference to underline the importance of free global trade. International cooperation and open markets, he said, offer benefits for all countries and peoples.
"It is crucial for our policy for us to offer fresh opportunities in all our societies," Mr Weidmann remarked.
"Let us not forget that."
Benefits outweigh risks
Speaking at the same event, Mark Carney, Governor of the Bank of England, highlighted the benefits of new technologies in the financial industry. He explained how many traditional banks are now already cooperating with fintechs in a move to offer their customers new online services, say. This, Mr Carney said, could help make banks more productive and drive down costs. However, it is ultimately for governments to decide whether – and how – to ensure the benefits of these technologies outweigh the risks. Mr Carney reported that the Financial Stability Board (FSB), of which he is the chair, is assessing the extent to which the risks associated with new financial technologies are addressed by existing regulatory frameworks.
Opportunities presented by digitalisation
Besides illuminating the challenges presented by fintechs, the participants at the G20 conference also debated the opportunities and risks associated with rising levels of digitalisation in the financial industry as a whole. Federal Finance Minister Dr Wolfgang Schäuble used this debate to draw attention to the benefits which digital funding solutions present for some parts of Africa which are still cut off from financial services. The potential offered by new capabilities can only really be harnessed, Dr Schäuble remarked, by not giving too much credence to the risks. Yet he, too, called for the creation of a uniform set of competitive rules for the digitalised world.
"Any democratic environment needs rules," Dr Schäuble said.
Queen Máxima of the Netherlands explained that, for all the new digital capabilities that are available, financial services are still not universally accessible. Even in the United States and Europe, she said, there are still millions of people who are cut off from the financial system and find it difficult to get the right insurance cover or take out a loan.
"We succeeded in bringing 700 million more people into the formal financial system between 2011 and 2014 – but 2 billion remain cut off," said Máxima in her capacity as the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA).
German Federal Minister of the Interior Thomas de Maizière drew attention to one drawback of the increasingly digitalised financial world – our growing digital vulnerability to increasingly smart malware – and called for greater investment in cyber security, noting that preventing cyber attacks is the key to preserving confidence.
"Customers need to be sure that their money is safe," Mr de Maizière announced.
The conference held as part of Germany’s presidency of the G20 was entitled "Digitising Finance, Financial Inclusion and Financial Literacy". The G20, an informal union comprising the 19 most important industrial countries and emerging markets and the European Union, is the central forum for informal international cooperation.