The group, which includes up to 50 banking executives, startups and regulatory bodies convened by the World Economic Forum, has proposed four recommendations for the private sector and financial supervisors aimed at safeguarding financial stability and fostering fintech.

The issue of fintech innovation has been high on the agenda of policy markers in recent months, with the Financial Stability Council, Iosco and national regulatory bodies setting up new work groups to monitor the waves of innovation sweeping the financial services market.

While not wishing to stifle innovation, the rise of fintech has been observed with some trepidation by policy makers, with new unregulated startups entering the market and threatening the status quo.

“Many clusters of innovation have the potential to scale very quickly, potentially transforming the architecture of the financial sector,” notes WEF contributor Andy Haldane, executive director, financial stability, Bank of England. “The regulatory community recognises this and has begun to work with the private sector to understand and develop appropriate safeguards for this new financial architecture, in ways which benefit users of financial services.”

In its paper, the WEF notes the risks to banks as they respond to the threats posed by innovative startups: "Heightened shareholder expectations and intense competition may incentivise the mainstreaming of new technology enabled innovations before the requisite control environment for risk and compliance is in place”.

The WEF recommendations focus on preservation of financial stability, ethical use of customer data and suitability of existing regulatory standards.

It calls for a debate to clarify the boundaries on the use of customer data for business purposes, the creation of a "public-private dialogue to identify areas where supervisory support is needed, the development of new industry standards to "redefine and enforce an approach to good conduct in light of new technology-enabled innovations" and the adoption of a consistent approach to the mitigation of risks arising from fintech innovations.

“One of the most important challenges we need to solve is building a framework that's global first and scales to accommodate the fast-changing landscape,” explains Ripple CEO Chris Larsen, who contributed to the paper. “It will require close partnership between the private and public sectors internationally to establish everything from policy and regulation to technical web standards that will foster innovation and early adoption while minimizing risks,”

Matthew Blake, WEF head of banking and capital markets states: “Historically, an inherent tension has often existed between innovation and stability. This publication represents the first time that incumbents, financial supervisors and fintechs have come together collectively to address the present wave of technology-enabled transformation in the financial services sector."

Read the full paper: