Sheridan acknowledged that FinTech is becoming more evident in the scale and pace of change taking place in traditional retail financial services marketplace. He also pointed out that:
- the Chair of the Financial Stability Board (FSB), Mark Carney, recently announced that global regulators are evaluating potential stability implications that emerging financial technology poses to the global financial system; “systemic implications of financial technology innovations and the systemic risks that may arise from operational disruptions”
- the European Commission is also taking an active interest in the impact of digitalisation, as reflected in its Green Paper on Retail Financial Services published late last year; “New business models are emerging: online-only providers and technology companies are entering the market, offering services (within Member States and sometimes cross-border) including electronic money transfers, intermediation in online payments, financial data aggregation, peer-to-peer funding and price comparison”
- ESMA has also addressed the challenges of financial innovation at the launch of its discussion paper on automated advice; “financial innovation is important and, at its best, contributes to economic growth. However, this can only be achieved and sustained where consumers have confidence in such innovations”.
From an Irish perspective, the Central Bank’s Strategic Plan has identified the increased risks arising from technological developments and the increased reliance on information technology by regulated firms, their customers and suppliers.
Sheridan acknowledged that FinTech is transcending traditional boundaries and borders, not just physical but also regulatory as it blurs the lines between regulated and unregulated activities. The Central Banks statutory objective is to provide effective regulation of financial service providers and markets, while ensuring that the best interests of consumers are protected.
Regulated firms must meet financial soundness rules as well as fitness and probity standards for their senior executives. They must have appropriate internal governance and controls to ensure they are properly run and importantly must ensure that they treat their customers fairly and ensure that any customer money and assets are securely held.
In terms of FinTech, the Irish Regulator is focused on four key areas:
- Monitoring of Emerging Risks
The Central Bank monitors current and emerging consumer risks arising from the rapidly changing face of financial services, products and business models.
- Authorisation Process
In 2015, the Central Bank enhanced its authorisation process for payment and e-money institutions based on three key principles: Accessibility, Transparency of Process and Clarity on Timelines
- New Product Development
Product oversight and governance arrangements: firms must identify their target market, test products before launch, monitor performance and take remedial action where problems arise; product monitoring will be required on an on-going basis.
- Assessing Consumer Protection Risks
The Central Bank is developing a Consumer Protection Risk Assessment supervisory model to include the assessment of how firms utilise technology to support their consumer risk management including:
- how systems are used to alert firms to emerging and existing consumer risks through exception reporting, reporting on breaches and near misses, complaints analysis and employee performance management;
- how firms consider consumer risk management and reporting when developing new systems;
- the maturity of firms’ analytics techniques in terms of identifying and escalating emerging and crystallised consumer risks
Sheridan concluded “while it is not possible or realistic for us to be ahead of every innovation, it is essential that our focus is firmly on ensuring that the appropriate framework is in place to ensure that innovation develops in a manner that ensures the best interests of consumers are protected”.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.