Volume: 11 Issue: 2
Bank of England Governor Mark Carney warned of the potential for FinTech innovations to pose “systemic” risks to the financial system in a speech to a G20 event in Germany on 25 January 2017, describing how, while FinTech promises benefits, its transformative nature means it could threaten credit quality and pose risks to the wider economy.
“It appears to me that Carney is very much looking at this from a financial stability perspective. In this regard, he seems to be quite relaxed about FinTech at the moment, mostly because none of it is prevalent enough really to affect financial stability as yet. That will surely change as FinTech solutions develop, but in doing so, there is likely to be quite a period to be able to test whether they work,” comments Harry Eddis, Partner at Linklaters. Carney referred to the possibility that FinTech, through the opening up of payment services, may “signal the end of universal banking as we know it.” “The focus and investment that has been applied to innovation in the financial services sector over the last five to six years has already had a profound effect on the way in which financial services businesses develop and integrate new technology. I fully expect that trend to continue, so I am sure Carney’s prediction will prove correct,” said Angus McLean, Partner at Simmons & Simmons LLP. “What is less clear is what that new landscape will look like and who the main enablers and beneficiaries of that transformation will ultimately be.”
Carney advised that regulatory authorities must focus on “disciplined management” of the risks, while noting that the Financial Stability Board is to look into the way that potential risks are currently handled. “Regulation is key in mitigating risks but there is an inevitable friction with maximising the user experience,” said Simon Warburton, Principal Associate at Mills & Reeve LLP. “Over-regulation could prevent adoption of FinTech solutions that might otherwise transform consumer choice, pricing and the quality and breadth of consumer empowerment.” Chris Finney, Partner at Cooley (UK) LLP, points out that typically regulators will tolerate new systems and services, before turning to intervention when potential risks become more apparent, a pattern witnessed in many areas. “Crowdfunding and peer-to-peer lending are recent examples,” notes Finney. “Perhaps inevitably, the regulators are often ‘behind the curve’ both in their understanding of what’s happening, and in their attempt to identify and mitigate the risks new technology can bring.”