What Sound Practices: Implications of fintech developments for banks and bank supervisors requires
Interest is growing in financial technology, or 'fintech'. In response, the Basel Committee on Banking Supervision (BCBS) has analyzed the implications for supervisors and banks’ business models. As fintech developments remain fluid, the impact on banks is uncertain, but a common theme is that banks will find it increasingly difficult to maintain their current operating models given technological change and customer expectations. The nature and scope of banking risks as traditionally understood may significantly change over time with the growing adoption of fintech, in the form of both new technologies and business models. This Sound Practices paper combines historical research, product analysis, and scenario analysis to provide a forward-looking perspective on fintech's potential impact on the banking industry, identifying key observations and related recommendations. For banks, the key risks associated with the emergence of fintech include strategic risk, operational risk, cyber-risk and compliance risk. The core recommendation is that banks should ensure they have effective governance structures and risk management processes to identify, manage and monitor these risks. This includes robust strategic planning, sound new product approval processes, implementation of operational risk principles, and appropriate due diligence and monitoring for any operations outsourced to third parties, including fintech firms. Ultimately, banks and bank supervisors are encouraged to balance ensuring the safety and soundness of the banking system with minimizing the risk of inadvertently inhibiting beneficial innovation in the financial sector, thereby promoting financial stability and consumer protection.
Pillar: Banking & Global Finance · Authority: Basel Committee on Banking Supervision · Version: 1.0.0 · Last updated:
Primary source: https://www.bis.org/bcbs/publ/d415.pdf
SHA-256 integrity: 1e02e032e7f88a8b73f3f89afed63519aa89c28aa9f5979d8dd36d8662ed918c
Primary Citations — 6 traced to source
- Recommendation 1: Banks and bank supervisors should consider how they balance ensuring the safety and soundness of the banking system with minimising the risk of inadvertently inhibiting beneficial innovation in the financial sector.
- Recommendation 2: Banks should ensure that they have effective governance structures and risk management processes in order to identify, manage and monitor risks associated with the use of enabling technologies and the emergence of new business models and entrants into the banking system brought about by fintech developments.
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