Balancing Innovation with Consumer Protection

 

 

Fintech innovation is a dual-sided coin. On one hand, innovations like AI, blockchain and tokenization bring demonstrable benefits including improved efficiency, accessibility, and convenience. Yet, they also come with novel risks like cybersecurity threats, data privacy and consumer protection concerns, as well as the potential for financial instability. Regulators and central banks will play a critical role in adopting an adaptive approach that balances innovation with addressing risks. In this session, regulators spill how.

 

1. New innovations, new risks

Regulatory frameworks need to adapt to the pace of innovation to ensure stability, financial integrity and consumer protection.

  • Christoph König, State Secretariat for International Finance (SIF): Regulation can provide a framework where innovation can thrive; without a predictable environment, it too is difficult for innovation to be sustainable
  • He goes on to address the new risks popping up with innovations like crypto and the increased risk of market abuse, as well as stablecoins and sanction compliance risks.
  • Other key risks he highlighted include stability, cyber, operational resilience, AI ethics, and concentration.

 

2. Regulating AI

AI is the talk of the town today in enhancing financial services. But the technology needs to be properly assessed and regulated to ensure it does not inadvertently disadvantage certain consumer segments.

  • König underscores for the need to ensure any AI being used is useful, purposeful and helps instill trust instead of the contrary.
  • Regulators today already have frameworks in place to ensure stability and financial market integrity, AI is simply a continuation of technological advancement being applied.
  • He goes on to address the novel risk of GenAI, emphasising the need for transaprency, explainability and recognising discrimination bias. On this point, regulators are now working closely with the industry to gain more clarity on potential risks and solutions.
  • Dr Eva Hüpkes of the International Association of Deposit Insurers (IADI) chimed in on the work IADI to promote regulation in the deposit insurance space. She illustrated the importance of future-proofing standards and the need for authorities to regularly review regulatory policies to ensure it aligns with the market.

 

3. Regulatory-industry dialogue

Both König and Hüpkes emphasised the importance of regulator-industry dialogue.

  • König: "It is not about innovating regulation. It is about embracing the innovation into the regulation."
  • Outcomes-focused and proportionate regulation: Rules imposed need to ensure the desired outcome and regulators need to be flexible in recognising this.

 

The session concluded with Hüpkes highlighting the opportunities that arise with new technology, in spite of the risks. "The objective is to use the technology to anticipate, to the extent possible, any stresses and if they materialize, to manage them in the best possible way," she said.

 

Watch Full Session

 

 

Speakers:

  • Christoph König, Deputy State Secretary, Head of Policy Planning and Strategy Division, State Secretariat for International Finance (SIF)
  • Dr Eva Hüpkes, Secretary General, International Association of Deposit Insurers

 

Moderator:
  • Foo Chek-Tchung, Executive Director, Public Policy, Global Finance & Technology Network (GFTN)
 
 

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