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First, on fintech, the Committee conducted a comprehensive assessment of the risks and opportunities for banks and supervisors. The Committee published its analysis last year as part of a set of Sound Practices on the implications of fintech for banks and supervisors. The report considers five stylised and non-mutually exclusive scenarios in which fintech could impact banks, with a particular focus on: (i) who manages the customer relationship or interface; and (ii) who provides the services and takes the risk.
There are also further considerations regarding the potential impact of big tech on banks' business models. As noted by the BIS, the key features of big tech's business models are data analytics, network externalities and interwoven activities. These three elements reinforce each other: network externalities beget more users and more value for users, which in turn allows big techs to generate more data, which helps enhance existing services and attract further users. In contrast, while large banks have many customers and offer a wide range of services, they have thus far not been as effective as big techs in harnessing the feedback loop between data, network externalities and interwoven activities. More broadly, the increasing growth of big tech could have a more profound impact on the industrial organisation of financial services. The financial hierarchy could be reversed, with banks relegated from being in the centre of the financial system to a subordinated player to payment services provided by big tech companies .
The second area of work by the Committee on technology focuses on the risks for banks' operational resilience. The proliferation of innovative products and services may increase the complexity of financial service delivery, making it more difficult for banks to manage and control operational risk. Legacy bank IT systems may not be sufficiently adaptable, or banks' change management vis-à-vis such innovation may be inadequate. The greater use of third parties, either through outsourcing or other fintech partnerships, increases risks surrounding data security, privacy, money laundering and customer protection.
The third area of work by the Committee on technology and finance is on cryptoassets, a field which has been recently and amusingly described as "everything you don't understand about money combined with everything you don't understand about computers". At this stage, cryptoassets remain small relative to overall assets in the global financial system, and banks currently have very limited direct exposures to them. Nevertheless, the Committee is of the view that the continued growth of cryptoasset trading platforms and new financial products related to cryptoassets have the potential to raise financial stability concerns and increase risks faced by banks.