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LONDON, April 19 (IFR) - Senior finance executives called onbanks, regulators and new start-ups to collaborate to ensure awave of financial technology innovation does not pose a systemicrisk to the industry.
"Technology-enabled innovations bring a new set of risks tothe financial system, both conduct and prudential," said thegroup of chairmen and chief executives from some of the world'slargest financial institutions, investors and regulators,brought together by the World Economic Forum.
The report, released on Tuesday, said the financial industry"is at an inflection point" due to technological change,regulatory uncertainty and the current macroeconomicenvironment. That has fueled a trend towards cutting out theintermediary roles undertaken by traditional banks and created anew playing field to win customers.
The report said that as well as risks from new entrants, theindustry needs to be on guard that traditional financial firmsor staff do not take more risks in their fight to keepcustomers.
The group's steering committee includes HSBC chairmanDouglas Flint, US clearing house DTCC CEO Michael Bodson,Deutsche Bank co-CEO John Cryan, UBS chairman Axel Weber,Deutsche Boerse CEO Carsten Kengeter and Algebris InvestmentsCEO David Serra.
Financial technology, or 'fintech', is growing rapidly andcan help cut costs, improve risk management, diversify risk andincrease competition across banking. But it also needs to bemonitored and harnessed, the group said.
"There is an urgent need both for the private sector andfinancial supervisors to collaborate" to foster competitionbetween traditional firms and new entrants, "while alsopreserving system stability in light of technologicaladvancement," it said.
Six areas of potential risks flagged by the group include agreater threat of industry misconduct, such as predatoryalgorithmic trading activity, and threats to the security ofdata, particularly from hacking and other forms of cyber risk.
The other four areas highlighted are potential losses toconsumers from new sources of funding, such as peer-to-peerlending; market electronification like high frequency trading;new payments systems; and regulatory arbitrage, if inconsistenttreatment of innovation allows some firms to fall through theregulatory cracks.
The paper said governments, supervisors and the privatesector now need to discuss a number of issues, includingdefining the boundaries that determine which customer data canbe used for business purposes. (Reporting by Steve Slater)
