Global regulatory bodies are calling for increased scrutiny of credit offerings from fintech-based alternatives to traditional banks.
A new report by the Committee on the Global Financial System (CGFS) and the Financial Stability Board (FSB) suggests that policymakers have to consider the opportunities and risks that arise from new forms of credit, including consumer and business lending, lending against real estate and business invoice financing.
CGFS chairman and NY Fed president William Dudley says: “A bigger share of FinTech credit in the financial system could have both financial stability benefits and risks.”
Potential benefits cited include increased access to alternative funding sources in the economy and efficiency pressures on incumbent banks. On the downside newer forms of credit provisioning may lead to weaker lending standards and more procyclical credit provision.
Klaas Knot, president of De Nederlandsche Bank and chair of the FSB standing committee, says: “The emergence of fintech credit markets poses challenges for policymakers in terms of how they monitor and regulate such activity. Having good-quality data will be key as these markets develop.”
The report adds to a growing mountain of documentation from the FSB assessing the impact on fintech developments on the global financial system. The body is set to publish a further overarching report, before the G20 Leaders’ Summit in Hamburg in July 2017, on the financial stability implications of fintech in general.