Fintech has tremendous potential to revolutionize access to financial services, improve the functioning of the financial system, and promote economic growth. For fintech to achieve its full potential, however, stakeholders must learn from the experiences of the financial crisis and collaborate to orient products and services toward broader objectives that benefit consumers, markets and the economy.
Those were the conclusions of the White House National Economic Council in its recent white paper, A Framework for FinTech. Released January 13, 2017, the white paper sets forth 10 overarching principles that constitute an outline policymakers and regulators can use to think about, engage with, and assess the fintech ecosystem in order to meet these policy objectives. The principles are meant to represent practical and actionable propositions to help the fintech ecosystem contribute to a well-functioning and inclusive financial system and to the economy as a whole.
“While transformative technologies are likely to enhance the post-trade process by further reducing costs and mitigating risk, regulators globally are closely monitoring potential opportunities and challenges these advancements may present,” explained Mark Wetjen, DTCC Managing Director and Head of Global Public Policy. “Regulatory review and analysis, in collaboration with industry participants, are key steps to ensuring that regulation allows for advancement while preserving key policy objectives. This type of forward-looking, collaborative approach will help ensure the successful implementation of safe and secure financial technologies.”
Innovations in fintech have the potential to fundamentally change the financial services industry. Unlocking that potential requires a collaborative approach to coordinate efforts to develop the right architecture, prioritize the infrastructure building blocks and support focused and collaborative experiments to advance fintech innovations. Highlighted here are the 10 Principles outlined by the White House National Economic Council:
1. Think Broadly About the Financial Ecosystem: Incumbent institutions and new entrants alike should think broadly about this dynamic landscape as they work to ensure that their offerings add value for consumers, investors, and markets, and do so in a manner that is safe, transparent, and sustainable.
2. Start with the Consumer in Mind: Consumer protection should be a primary and motivating concern for products and services offered by fintech companies. Products and services that are safe, transparent, user-friendly, and enhance choice will help ensure that consumers – whether individuals or institutions – derive maximum value.
3. Promote Safe Financial Inclusion and Financial Health: Stakeholders in the fintech industry should aim to develop products and services that safely increase access to financial services and improve financial health.
4. Recognize and Overcome Potential Technological Bias: To ensure that fintech truly is a means to increasing safe and fair access to financial products and services, rather than a vehicle that perpetuates income disparities or racial and gender inequality, innovators should be proactive in assessing the quality of their data and the potential for bias or negative externalities in their development and use of technology.
5. Maximize Transparency: The importance of providing transparent financial products and services is one of the critical lessons learned from the 2008 financial crisis. As fintech companies invent and reinvent financial tools, they should seek to do so in a way that is simple, clear, and transparent. Working together to promote transparency, the public and private sectors can have enormous impact on the efficiency and security of the financial system.
6. Strive for Interoperability and Harmonize Technical Standards: As financial services continue to disintermediate and consumers seek increasingly personalized and flexible financial solutions, fintech companies and financial institutions should embed a presumption of interoperability and harmonized (or harmonizable) technical standards in their products and services.
7. Build in Cybersecurity, Data Security and Privacy Protections from the Start: Given the proliferation of cybersecurity threats and the increasingly important role of big data, fintech companies must incorporate robust cybersecurity, data security, and privacy safeguards at the beginning of, and throughout, product and service lifecycles.
8. Increase Efficiency and Effectiveness in Financial Infrastructure: As enterprise and institutional innovations continue to develop, companies should keep in mind the goals of increasing efficiency, structural integrity and safety, transparency, access, and compliance.
9. Protect Financial Stability: While new and untested innovations may increase efficiency and have economic benefits, they potentially could pose risks to the existing financial infrastructure and be detrimental to financial stability if their risks are not understood and proactively managed.
10. Continue and Strengthen Cross-Sector Engagement: Such engagement helps identify areas for collaboration and reduce regulatory uncertainty. Additionally, close collaboration potentially could accelerate innovation and commercialization by surfacing issues sooner or highlighting problems awaiting technological solutions.
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