BoE governor Mark Carney: Fintech poses risk to financial system

Regulation | January 26, 2017 By:

Bank of England governor Mark Carney said that the fintech revolution poses significant risks to the stability of the financial services sector.

Speaking at a conference in Germany organised by the country’s central bank, Carney said financial innovation could reduce costs and improve efficiency.

But it could also pose risks to the stability of bank funding, credit quality and even the broader economy.

“The opening up of the customer interface and payment services business, could, in time, signal the end of universal banking as we know it. If today’s universal banks have less stable retail funding and weaker, more arms-length client relationships, the volatility of their deposits and liquidity risk could increase,” said Carney.

Carney, who is also chairman of the Financial Stability Board, said the diversity of the system, which includes peer-to-peer payments companies and payments networks, could “reduce systemic risks” and promote competition. Carney also welcomed the possibilities of a “fintech revolution that will democratise financial services.”

The Bank of England has already published papers on fintech disruption while launching an in-house fintech accelerator to observe and learn. This is part of the educational process for the 2nd oldest central bank in the world.

“Looking ahead, it is possible that virtual currencies and fintech-based providers, particularly where they gain direct membership to central bank payment systems, could begin to displace traditional bank-based payment services and systems. Such diversification could be positive for stability; after all the existing tiered and highly concentrated system has created single point of failure risks. At the same time, regulators would need to monitor such changes for any new concentrations,” said Carney.

Finally, he warned against excessive hype saying that: “Where are we along the cycle from the technology trigger to the ‘peak of inflated expectations’ and the trough of disillusionment? Will fintech change the world as we know it? Is there something new under the sun?”