News Digest:

Fast growth and heightened importance of FinTech in the functioning of global financial intermediation is creating system-wide risks needing added regulation, says the IMF. And digital banks, with their focus on uncollateralized lending and liquidity risks pose a big challenge for regulators as these neobanks are yet untested in an economic downturn.

Takeaway:

In a blog post, the IMF also suggests that competitive pressure from FinTech firms are also hurting the profitability of traditional banks with no likely respite in the future as financial services continue to shift from regulated banks to entities with little or no oversight.

This requires policies that target both traditional banks and FinTech firms proportionately in order to foster the latter while containing the risks. The IMF says FinTech firms needed stronger capital, liquidity and risk-management options while traditional banks need to focus on technology innovation as their existing business models appear less sustainable.

End Notes

Source: https://blogs.imf.org/2022/04/13/fast-moving-fintech-poses-challenge-for-regulators/