18 February 2019

Financial Times: Do we need a global technology regulator for financial services?

Axel P. Lehmann, UBS president of personal and corporate banking and president of UBS Switzerland, and Steffen Kern, chief economist and head of risk analysis at ESMA, write that making effective use of technology's potential will require a new wave of global policy co-ordination.

Why technology in financial services requires co-ordinated regulation

As new technology multiplies and becomes ubiquitous in the financial sector, new risks will need to be contained and regulatory frameworks will need to be internationally co-ordinated and upgraded.

From a risk perspective, cyber security and cyber resilience are top priorities. According to the World Economic Forum Center for Cybersecurity, economic loss due to cyber crime is predicted to reach $3tn by 2020, and 74 per cent of the world’s businesses can expect to be hacked in the coming year. Digital connectivity makes cyber crime a global threat that requires a standardised approach, yet, as recognised by the FSB, regulatory and supervisory approaches to cyber security are becoming increasingly fragmented, undermining the effectiveness of financial institutions' efforts to address cyber threats.

Additionally, new products, business models and players fall out of the current remit of existing regulatory and supervisory mandates of banking and capital markets authorities. This requires reflecting on the need for adaptation of existing mandates as well as on the necessity of aiming for a single regulatory approach to technology in financial services at international level.

Unlocking the benefits of new technology

Despite the regulatory challenges, the opportunities made possible with new technology are too great to ignore. Such changes range from product design to client interaction to back office operations to compliance and reporting. And they can translate into significant benefits for consumers of financial services as well as society in general.

Mobile and internet-based services are being made available independent of physical location. Only via co-operation will global resilience be ensured and the necessary level playing field emerge, enabling higher liquidity in financial products, safer transactions, fair pricing, lower compliance costs and less complexity — all to the ultimate benefit of corporate and retail consumers of financial services. [...]

Global policy co-operation on emerging technology is necessary to enable better finance

Opportunities will emerge from these technological changes. And they have immense potential. Globally aligned standards, data templates, protocols, conduct-of-business and anti-fraud rules are necessary preconditions for optimal development of new technological advances to support growth and, ultimately, societal wellbeing. The conclusions of the recent G20 Summit in Buenos Aires send a reassuring message, highlighting the commitment to continued regulatory and supervisory co-operation.

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