Traditionally seen as a reactive body, recent moves by the Financial Stability Board (FSB) suggest a shift towards a more proactive and comprehensive approach in regulating the financial sector. This transition is noteworthy given the rapid technological advancements which have come to characterise banking, securities, payments, (crypto)currency, and insurance sectors.
The tone for this shift was set in a speech by Randal K. Quarles, the FSB’s new Chair (and Vice Chair for Supervision of the US Fed), delivered on 10 February to central bank governors. As discussed in this post, Quarles’s vision statement ushers in an era of increased proactivity. Quarles emphasised the importance of understanding and responding to the challenges posed by new technologies, thus highlighting the FSB’s commitment to staying ahead of the curve.
Also in February, the FSB has issued its work programme for 2019, acknowledging the impact of technological innovation on global financial stability and providing further indication of the FSB’s intent to expand its role in regulating cross-border fintech activities.
In particular, the FSB’s fintech report pointed to the potential for Big Tech companies to disrupt traditional financial services. By recognising the significant implications this has, in turn, on financial stability, the FSB sets out to build on its earlier work and to make future regulatory efforts aimed at addressing the risks and opportunities posed by new data and financial services.
These recent developments signal a fundamental shift in the FSB’s approach to financial regulation, moving from a reactive posture to a more proactive stance. Quarles’s FSB is now looking to engage with a broader array of stakeholders, extending its regulatory purview to include not only traditional financial institutions but also technology companies that are increasingly part of the financial ecosystem.
The rise of fintech presents a host of new challenges and policy dilemmas for regulators like the FSB. Key among these is the role of cryptocurrencies and their potential integration into mainstream financial systems, raising questions about their impact on monetary policy and financial stability. Additionally, the use of AI and alternative data in lending and insurance decision-making poses new concerns regarding data privacy and the potential for biases. Furthermore, the regulatory status of technology platforms such as Uber and Airbnb, which operate at the intersection of technology and finance, remains contentious. These emerging challenges highlight the need for a regulatory approach that is both flexible and comprehensive, addressing stability threats without stifling opportunities for innovation.