Mark Carney has intervened in the debate over the level of supervision of the fast-growing fintech sector, cautioning against the use of a “light touch” approach that some have blamed for contributing to the global financial crisis.
The Bank of England governor’s comment at the launch of a new fintech agenda sponsored by the World Bank and the International Monetary Fund in Bali on Thursday came as China continues to grapple with the fallout from rampant unregulated lending through its peer-to-peer sector.
Carney, who is chair of the Financial Stability Board also said: “We don’t do light touch regulation but in the [UK’s] Financial Conduct Authority’s [regulatory] ‘sandbox’ we do proportionate regulation for firms early on, and give them proportionate access to advisers to help with it.”
According to figures published by the Basel Committee last month, there was $240bn of fintech credit in China — out of $283bn globally. Fintech credit per capita was 70% above that of the US. In less than two months over the summer, 150 P2P lending platforms in China collapsed, and protestors tried to march on the Chinese regulators.
NOT LIGHT, NOT HEAVY
The issue was not addressed directly in the agenda, a document released by the World Bank and IMF on Thursday, which sought to balance the possible benefits of fintech by including improving access to financial services in emerging markets with any possible risks.
The only hint was an acknowledgement that “implications for other financial safety net arrangements might need to be considered… this could include analysis of the nature of deposit insurance… and issues relating to crisis management and resolution.”
The agenda aims to give regulators a platform for co-operation on issues such as preventing money laundering, and to harmonise their approach to issues over data, paving the way for fintechs to scale up beyond national borders.
IMF managing director Christine Lagarde echoed Carney’s concerns, saying that the agenda’s recommendations were “not prescriptive, not either light or heavy”, but added: “It should be a strong agenda for all countries to ask themselves whether they’re addressing the issues or restricting innovation.
“Supervisors and regulators should be encouraged to see if, for example, a market place is really a market place or if it is actually taking deposits and acting like a bank.”
The agenda also acknowledged risks for traditional monetary policy from fintech platforms, particularly when they are involved in credit creation. “In many countries, monetary policy is transmitted by changing the marginal price of liquidity — central bank reserves — available to large commercial banks,” said the report.