LONDON — The Financial Stability Board has set its sights on fintech as a potential source of future global financial instability and is monitoring the sector closely, its chairman Mark Carney told journalists on Monday.
Speaking in his capacity as the head of the FSB, not as Bank of England governor, Carney made clear that the board is looking carefully at developments in the financial technology sector and how they could possibly impact the stability of the global financial system in the future.
“Turning to new, emerging risks to financial stability, we’re studying the financial stability implications of the rapid growth of fintech, we’re looking at addressing the implications of the withdrawal of corresponding banking services in vulnerable countries,” he said at a briefing in London.
“On fintech, our report published last week sets out the opportunities and risks from a purely financial stability perspective. It concludes that while potential risks to financial stability are well covered by existing frameworks, we will continue to need to monitor developments closely.”
“The financial system is evolving, so the FSB will continue to scan the horizon to identify, assess and address new and emerging risks to financial stability,” the FSB said in a statement corresponding with the release of a report to the G20 conference in Hamburg later in the week.
The FSB, set up by the G20 during the tail end of the crisis in 2009, is tasked with monitoring and making recommendations about the health of the global financial system, and making sure that a crisis like 2008 never happens again.
Carney’s comments come the week after the FSB released a report detailing a 10 step list of areas in fintech where international cooperation is needed to ensure that fintech does not threaten global stability. Three of those steps, the FSB said at the time, “are seen as priorities for international collaboration,” while seven others “merit authorities’ attention.”
The big issues stemming from fintech include:
- “managing operational risk from third-party service providers,”
- “mitigating cyber risks; and”
- “monitoring macrofinancial risks that could emerge as FinTech activities increase.”
Carney is not the first major figure in central banking to warn about the potential for financial instability caused by new technologies, and his comments follow soon after Jens Weidmann, head of Germany’s central bank, the Bundesbank, warned that the rise of cryptocurrencies like bitcoin has the potential to make future financial crises even worse.
“Allowing the public to hold claims on the central bank might make their liquid assets safer, because a central bank cannot become insolvent,” Weidmann said in a speech in June.
“This is a feature which will become relevant especially in times of crisis — when there will be a strong incentive for money holders to switch bank deposits into the official digital currency simply at the push of a button. But what might be a boon for savers in search of safety might be a bane for banks, as this makes a bank run potentially even easier.”
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