Mark Carney, governor of the Bank of England. (Photo: Michael Wuertenberg/World Economic Forum/swiss-image.ch via Wikimedia Commons)
Fintech could pose a threat to traditional banks in the United Kingdom, according to Bank of England Governor Mark Carney. But that doesn't mean he thinks they should be subject to tougher regulation.
In a speech Wednesday at the International Fintech Conference in Old Billingsgate Market in London, Carney discussed the "promise of fintech."
Although fintech adds competition to the financial services industry, Carney said "just because something is new doesn't mean it should be treated differently." "Similarly, just because it is outside the regulatory perimeter doesn't mean it needs to be brought inside," he noted.
He acknowledged that fintech offers something new and innovative for consumers and simultaneously broadens competition among financial institutions.
Carney says fintech will "democratize financial services." "Consumers will get more choice and keener pricing," he said, noting that small and medium businesses will have access to new credit and financial services will be more inclusive.
The U.K. is well-known as a world leader in fintech. It is one of the first countries to create regulation in the space, and has launched a regulatory sandbox where fintech firms are able to test their products while essentially waiving any liability of regulatory scrutiny.
The Bank of England created a New Bank Start-up Unit last year, which advises companies trying to become new banks. Carney said in his speech that four mobile banks have been authorized as a result of the new division.
The bank also launched a fintech accelerator last year. "Since then, we have worked with a number of firms on proofs of concept ranging from strengthening our cybersecurity to using AI for regulatory data, and improving our understanding of distributed ledgers," Carney said.
Some of the questions that he said need to be answered, moving forward are: "Which fintech activities constitute traditional banking activities by another name and should be regulated as such? How could developments change the safety and soundness of existing regulated firms? How could developments change potential macroeconomic and macrofinancial dynamics including disruptions to systemically important markets? And what could be the implications for the level of cyber and operational risks faced by regulated firms and the financial system as a whole?"
Carney points out that the most significant changes in fintech are with payment service providers, which he says have "generally avoided undertaking traditional banking activities." "So for now," he said, "absent a substantive change in business models or scale of activities, the [Financial Policy Committee] FPC is unlikely to want to bring these firms into the regulatory perimeter." The bank's independent committee was created in 2013 after legislation was passed aimed to create financial stability and is tasked with eliminating risks to the U.K.'s financial system and supporting the government's economic policy.
But Carney also acknowledged that customers' new interest in fintech firms could reduce the customer loyalty and stability of incumbent banks. "If this happens, the Bank of England would need to ensure prudential standards and resolution regimes for the affected banks are sufficiently robust to these risks," he said.
Carney said the "challenge for policymakers is to ensure that fintech develops in a way that maximizes the opportunities and minimizes the risks for society."