A group of international banking regulators is apprehensive about the disruptive effects and potential risks that financial technological innovation poses to banking systems around the world – something investors and taxpayers perhaps should be mindful of. In a new report, the Basel Committee on Banking Supervision detailed its concerns about fin-tech,” and listed a number of suggestions that banks and their regulators should seriously consider to mitigate them. “While some market observers estimate that between 10 percent to 40 percent of revenues and 20 percent to 60 percent of retail banking profits are at risk over the next 10 years, others claim that banks will be able to absorb the new competitors, thereby improving their own efficiency and capabilities,” the BCBS said.
Basel researchers considered several scenarios and assessed the possible effects they might have on the banking industry. “A common theme across the various scenarios is that banks will find it increasingly difficult to maintain their current operating models, given technological change and customer expectations,” the report stated. The regulators also noted that banks have gone through various phases of technology-enabled innovation before. “However, the rapid adoption of new technologies along with their effect in lowering barriers to entry in the financial services market has fostered the emergence of new business models and many new fintech entrants,” they said. “These factors may prove to be more disruptive than previous changes in the banking industry, although as with any forecast, this is in no way certain.”
The BCBS also listed a number of key recommendations it said banks and their regulators ought to consider, such as balancing safety and soundness without inhibiting the benefits of innovation in the financial sector; ensuring effective governance and risk management at banking institutions; and facilitating global coordination and cooperation among regulators. The regulators have invited the public to weigh in and asked for comments by October 31st.
