FINTECH – THE POLICY AGENDA Mick Mc Ateer, Co-Director, Financial Inclusion Centre Chair, EC Financial Services User Group (FSUG)

BACKGROUND Financial system/ services huge and complex but at its core has four primary functions meant to meet the needs of households and real economy Transactional banking and payments Asset gathering/allocation/ management of assets Financial intermediation and credit creation Risk management and insurance Undertaken by complex, costly networks/ infrastructures and supply chains of financial institutions, fiduciaries, intermediaries, information providers, distributors, back office staff etc Huge body of complex international, EU and national legislation and regulation trying to constrain bad behaviours, promote good behaviours/ outcomes But serious concerns about the economic and social utility of financial services and ability of regulators to manage systemic risk and make markets work (esp keeping up with innovation) Key issues are: systemic risk and resilience; efficiency and innovation; conduct of business and market integrity; trust and confidence; and social/ externality costs Question is: can fintech actually help make markets work better; will we just see a re-ordering of financial services rather than democratisation, disruption, and transformation as claimed by fintech evangelists?

FINTECH – DYS~UTOPIA? Cautious optimism advisable, financial services poor track record at true innovation (risks and costs have often outweighed expected benefits) Fintech such as ‘robo-advice’ should have positive impact on back-office/ process costs, economics of distribution (so reducing access costs) Some limited potential for improving behaviours/ decision making (by consumers and market) Fin products are just packets of information wrapped in a contract so clear potential for improving accessibility/ flexibility of products and service (eg. just-in-time insurance) We should see service improvements at the interface between providers/ intermediaries/ consumers Blockchain technology also has significant potential in many areas Clear benefits for transactional banking and payments Significant savings for clearing and settlement, cross-border payments, frees up capital Potential regulatory dividend In theory should promote financial resilience through distributed technology (less concentrated) ‘real time’ prudential and conduct regulation (eg money laundering regs) new ways of auditing?

FINTECH – DYS~UTOPIA? But there are clear risks and downsides, limitations, and barriers which will hinder effective application of fintech Fintech may cause further disruption (in a bad sense) in financial markets, more not less herding behaviour, amplify and distort market movements, further exacerbate market short termism Unlikely to lead to significant change in relationship between/ transfer of power from markets to consumers Consumers still delegating responsibility for reassurance and confirmation on important decisions to ‘trusted intermediaries’ Combination of fintech/ big data more likely to lead to financial exclusion than inclusion, and exploitative practices/ value extraction Probability is fintech challengers will remain marginal unless Structural interventions from policymakers clear space; or The tech giants get serious (but might not want full banking licence) Trust and confidence issues (bitcoin effect) Data security and privacy concerns Legislation, regulatory architecture and governance not kept pace with innovation Limited regulatory and civil society capabilities may cause default to ‘precautionary principle’ Vested interests will fight hard Conclusion is: no-one knows how it will turn out but let’s be pragmatic progressives