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The IOSCO Research Report on Financial Technology, published by the International Organization of Securities Commissions (IOSCO), describes a variety of innovative business models and emerging technologies that are transforming the financial services industry, including:
• financing platforms: peer-to-peer lending and equity crowdfunding;
• retail trading and investment platforms, including robo-advisers and social trading;
• institutional trading platforms, with a specific focus on innovation in bond trading platforms;
• distributed ledger technologies, including application of the blockchain technology and shared ledgers to the securities markets.
The report analyzes both the opportunities and risks that each of these new technologies presents to investors, securities markets and their regulators.
Fintech applications are developing at an increasingly fast pace, creating opportunities to achieve better investor outcomes, such as greater accessibility by previously underserved segments of modern portfolio theory-based investment at lower cost; easier comparability of investment options, costs, fees and investment returns; greater investor choice and diversification; and greater financial inclusion. The latter is especially true in emerging markets where due to the lack of legacy infrastructure, Fintech is often able to leapfrog current technology.
At the same time, as with any change, come new risks and vulnerabilities. Though these risks differ depending on the technology, certain risks are recurring across the Fintech sector, such as those arising from unlicensed cross-border activity, programing errors in the algorithms that underlie automation, breaches in cyber security, and the failure of investors to understand financial products and services.
The global nature of Fintech therefore creates challenges that regulators should address through international cooperation and the exchange of information, according to the report, which draws on contributions from the IOSCO Committee on Emerging Risks, the Growth and Emerging Markets Committee and the Affiliate Members Consultative Committee.