The Covid-19 pandemic and ensuing of public health measures have accelerated the trend towards digital finance. Now more than ever, consumers are managing their finances and investments online. Businesses must continue to reinvent themselves and authorities will need to coordinate their policy response. More details in the speech.

"...In other words, some of the radical changes in our daily lives bring opportunities. But there are challenges too. Digital interactions are not always a proper substitute for face-to-face interactions. We know this all too well from recent experience.
My remarks today will focus on the accelerated shift to online finance. I will start by describing the long-standing phenomenon of digitalisation in the financial sector and how the Covid-19 crisis has acted as a catalyst. In this context, I will highlight some serious risks. Finally, I will suggest how we can address the risks while embracing opportunities. In short, how can we safely navigate this period of accelerated digital transformation?

Digitalisation: risks and opportunities

Digitalisation is far from a new phenomenon in finance. The promise of efficiency gains has for decades led firms to digitalise their operations. From back office functions to customer-facing activities, financial services have steadily moved first to digital format, then online and in the cloud.

In recent years, advanced technologies have proliferated. Consumers can manage their portfolios or bank accounts via smartphone apps. Financial firms are using data analytics and machine learning for a wide range of purposes, including risk management, fraud detection, customer research and devising new investment strategies.Other technologies play a linking role. Behind the scenes, digital infrastructures are connecting different business services together. For example, APIs enable the interoperable use of data. In so doing, they promote the use of technology for regulatory purposes in the form of RegTech. This newfound interoperability is supported by regulatory frameworks and common standards, which ESMA does much to promote. The cloud is now a vital infrastructure in many sectors and plays an increasing role in the financial world.

Distributed Ledger Technology – DLT for short – also continues to hold promise. Estonia has introduced a DLT-based public digital identity system alongside extensive online provision of state services. Initiatives of this kind reduce paperwork, save citizens time and make records more accurate. We are yet to see a ‘killer app’ for DLT in finance, but given the growing civic and economic applications, it remains a realistic prospect.

The opportunities from digitalisation are clear. It has the potential to bring faster, cheaper, more transparent and more efficient financial services to consumers. Digital platforms can provide consumers with ready access to detailed information presented in new, intuitive ways. For people comfortable with digital technology, it may promote financial inclusion, even if others less inclined to use digital technology may lose out.
But there are risks, too. Despite new modes of presentation, technology may at times reduce transparency. For instance, it can be hard to explain an algorithm-based investment or lending decision to a consumer.
Zooming out, we can see an emerging economic trend towards technology-powered business models that operate across economic sectors. This profound change in market structure, despite potential benefits, raises concerns around privacy and data rights. Furthermore, it may raise concentration risk.1

An operational incident that originates in one platform service could have a large impact on other lines of business, including financial services.....