Global Dialogue on Regulatory Approaches for Inclusive FinTech
26 September 2019
Prague, Czech Republic
Opening Remarks by AFI Executive Director Dr. Alfred Hannig
Dear members and partners, Ladies and Gentlemen,
It fills me with pride and joy to be privileged to open this important event in front of a very distinguished group of participants.
First of all, let me thank you all for traveling to Prague to join us in this Dialogue on Regulatory Approaches for Inclusive FinTech. We are grateful to the Czech National Bank (CNB) for their generosity and dedication in hosting us during this week.
As you are aware, this gathering is part of our broader approach to stimulate effective and productive engagement among developed and developing country regulators on the convergence of policy and regulatory solutions that respond to innovative inclusive FinTech.
When I prepared opening remarks for this event, I was trying to build a common denominator for all of us from which we can together start to the exchange for the next two days. I finally concluded that I should start off by talking about the common ground, or why Financial Inclusion is in everyone’s interest.
Why are we all interested in Financial Inclusion?
Over the past decade, financial inclusion became an important part of public policymaking in many countries and moved to the core of mainstream economic thinking. This led to the understanding that greater financial inclusion not only provides opportunities for the unbanked and the poor, but equally, that it is a catalyst for numerous international development goals. Most importantly, today, inclusive and sustainable growth starts with financial inclusion.
We also saw a growing global consensus on the links between financial stability and financial inclusion. Recent IMF and World Bank research has found that advancing financial inclusion through electronic payments, deposits or insurance may be associated with positive effects on financial stability. And as the World Bank rightly concludes, ignoring the nexus between the two objectives could result in suboptimal outcomes, namely, costly financial crises or continued financial exclusion. From a policy perspective it seems to be obvious that much can be gained from a better understanding of these interrelationships and coordinated policy approaches.
But if this is clear and well documented we then want to ask ourselves the next question:
What has changed?
It is important to note that during this last decade, financial inclusion was traditionally regarded as a predominantly developing country concern. There was a reason for that.
Indeed, we have mainly seen policymakers and regulators in developing and emerging countries embrace the leapfrogging potential of new financial technologies and opt for innovative regulatory approaches, such as ‘test and learn’ and sandboxes, without compromising their monetary or financial stability mandate. Today, however, the previous patterns we are used to, don’t work anymore.
We are now witnessing a global convergence of policy and regulatory solutions in the financial inclusion and financial technology (FinTech) space. Such solutions are designed to respond to emerging major public policy challenges that resonate for both developing and developed countries alike and break down traditional distinctions between developed and developing country policy concerns.
Given the developing countries’ rapid rate of progress when it comes to financial access, and the developed countries strong interest in making their financial sectors more efficient, convenient, and competitive, we are starting to see this convergence in the policy agenda, particularly around issues of the quality of financial services, the level of consumer protection particularly where technology risks are concerned, and the need to carefully manage the entry of new innovative providers into the marketplace.
More concretely, the term of global convergence refers to policy and regulatory solutions that respond to innovative FinTech and aim to effectively oversee increasingly digitized financial systems and services. The concerns of financial regulators on the risks of technology all around the world underline the convergence of such solutions. These risks include cybersecurity, systems interdependencies, consumer data management and effective consumer protection that reinforce trust to digital financial services.
The objective of financial inclusion is not only to bring the unbanked into the financial system. We also need to avoid already banked populations falling out of the system over time.
Why is financial inclusion in everyone’s interest?
To be clear, to answer this question I am not even beginning with a deeper look at the 1.7 billion unbanked in the world which is certainly one of our biggest challenges. In order to drill down on the various dimensions of convergence I would like to now emphasize on the following aspects:
Young people: Technology providers drive behavioral changes among the youth, whose views on data privacy in some markets may significantly differ from older generations. Many young people even emphasize the convenience they are experiencing as a result of digital transparency when a simple mouse click allows them to find exactly what they are looking for on digital platforms.
These groups are growing up in an increasingly digitized environment and may value the convenience of digital platforms over the risks to their data privacy. And with continuing technological advances and improving skills, users themselves are beginning to shape the design and use of financial services.
These emerging patterns of user behavior and demand for digital services among the youth segment create new challenges for most financial and consumer protection regulators. They also make the case for investing more into financial literacy for young people, as well as requiring innovation in how financial education is delivered to the young through new digital channels.
Old people: This year’s G20 Presidency of Japan has focused on the financial inclusion of older people. Today, 70 percent of the world’s older generation live in G20 countries. However, ageing in developing countries is happening much faster than in the developed world with 80 percent of older populations expected to live in low- and middle-income countries by 2050.
Spurred by dramatic demographic transformations, the digital revolution is already affecting financial inclusion for older people. For example, in some Scandinavian countries you will find it difficult to pay for your coffee with cash.
Women’s financial inclusion: Greater access to financial services for women is considered a key enabler for Gender Equality and Women Empowerment, one of the 17 ambitious Sustainable Development Goals (SDGs). The momentum for financial inclusion of women is indeed increasing and this topic is receiving a growing amount of attention in global debate on economic, social and development issues, led by the private sector, civil society, and development partners.
A range of studies indeed have demonstrated that giving women access to basic financial services can unlock unprecedented potentials for economic growth. Micro arguments for investing in women’s financial inclusion were delivered by extremely valuable financial diary exercises, shedding more light on the true financial lives of women and how greater inclusion can impact the well-being of the family and the community, and ultimately the country as a whole. This rigorous research and empirical evidence consequently influenced the debate and encouraged financial policymakers and regulators to analyze the barriers that hinder women from entering the financial system.
Climate emergencies: An important dimension of global convergence relates to the recent shift of financial regulators towards the challenges of climate emergency.
First of all, let me mention the Network for Greening the Financial System, which some of you have already joined as members and which is arguing that “climate risks are a source of financial risk”. From our side we see Inclusive Green Finance is an emerging policy area where we are beginning to see evidence that financial inclusion can be an appropriate way to build resilience to the effects of climate change and financial services for low-income customers and micro, small and medium enterprises (MSMEs). Appropriate financial services to this segment can provide buffers against climate catastrophes.
We are also becoming aware of the demand for building resilience and enabling mitigation at the bottom of the economic pyramid. For example, this can be done through appropriately designed insurance products that enhance MSMEs so that they can better cope with climate impacts. This approach is indeed unique and requires policy and regulatory guidance.
Finally, the issue of cryptocurrencies: Recently, concerns on the risks of technology have been brought to the forefront by the entry of the Big Techs into financial services. These global multi-billion user platforms hold the promise of efficiency gains and their potential ability to facilitate greater financial inclusion even in unchartered territories, such as the broader issuance of cryptocurrencies backed by a reserve of assets. At the same time, such innovations raise critical regulatory concerns and structural challenges.
While it is too early to make any conclusive statements, given the complexity of the regulatory challenges raised by these developments, it is already apparent that global policy coordination and learning will be crucial. Not only will this assist in the adoption of policy choices that keep these risks in check but also facilitate the developmental value that such platforms - when scaled - may hold for financial inclusion. An increasing number of central banks is now engaged in research on how digital currency can work.
Inclusive FinTech: AFI's Sochi Accord and the appetite to engage
We have received requests from members to engage with developed country regulators on financial inclusion policy interventions that support their country’s advancing financial sector ecosystem. The request for such engagement was driven by financial ecosystems’ advancement of some members beyond the access dimension into more complex issues of usage, quality and impact assessment of financial inclusion services and related externalities. This increasing appetite to engage has been reflected in the Sochi Accord on Inclusive FinTech which is AFI members’ commitment in this space.
This event here in Prague is a direct follow-up on the demand from the AFI Membership for technical level engagement with developed country financial regulators, to identify the convergence topics of mutual interest, and also to determine what kind of systematic learning platform should be put in place for facilitate our ongoing exchange of knowledge on the regulatory implications of technology innovation. On the other hand, we also received expressions of interest from financial regulators in Europe to engage on a global level on issues around inclusive FinTech.
It is the first AFI event that brings together the AFI membership with developed country regulators from Europe and elsewhere, to share learnings and take forward concrete actions on the specific theme of inclusive FinTech. It builds on our already existing collaboration with the Central Bank of Portugal with whom we we have signed Memorandum of Understanding to engage with regulators from Portuguese speaking countries on financial education out of the BdP facilities in Lisbon.
Our discussions will center around four topics:
- Payment systems and payment systems oversight
- FinTech ecosystem
- Risk, consumer protection and financial capability
- Innovative approaches to banking and regulation
I would like to thank two technical facilitators who will be guiding us in our deliberations over the next two days:
Expected outcome: global perspective - learn globally, apply locally
The global convergence of issues and solutions under the financial inclusion agenda calls for the cross-pollination of ideas and for structuring mid- to long-term systematic peer engagement on converging topics that are pertinent to both developed and developing country regulators for advancing financial inclusion and sustaining the financial system.
Since 2009, the Alliance for Financial Inclusion has been a champion of cooperation, transparency, tolerance and mutual respect. Our success, and indeed our very existence, is a result of our member’s strong belief in the benefits and power of peer-to peer relationships across the global community.
We have the confidence that using an open model of cooperation and collaboration will lead to a dramatic acceleration of innovative, effective, efficient and smart policy solutions.
While there is now a global recognition of importance of financial inclusion, we must double our efforts to ensure that the benefits of an open interconnected world are also understood. Isolationism is not an option for us.
A free flow of knowledge and productive ideas will bring us to a better future. Those who chose to hide behind walls and barriers may soon discover that they have been left far behind.
Appreciate the role of the Czech National Bank in conceptualizing this event and their generous hosting.
Thank the AFI members, developed country regulators, participants from standard setting bodies, academia, innovation hubs, FinTech providers, and other international organizations and others for joining us for two days of rich discussions.