The consultation, Sound Practices: implications of fintech developments for banks and bank supervisors, assesses how technology-driven innovation in financial services, or ‘fintech’, may affect the banking industry and the activities of supervisors in the near to medium term.

Various future potential scenarios are considered, with their specific risks and opportunities. In addition to the banking industry scenarios, three case studies focus on technology developments (big data, distributed ledger technology, such as Blockchain, and cloud computing) and three on fintech business models (innovative payment services, lending platforms and neo-banks).

Although fintech is only the latest wave of innovation to affect the banking industry, the rapid adoption of enabling technologies and emergence of new business models pose an increasing challenge to incumbent banks in almost all the scenarios considered.

Banking standards and supervisory expectations should be adaptive to new innovations, while maintaining appropriate prudential standards. Against this background, the Committee has identified 10 key observations and related recommendations on supervisory issues for consideration by banks and bank supervisors.

These include:

• overarching need to ensure high compliance standards without inhibiting beneficial innovation in the banking sector;
• key risks for banks related to fintech developments, including strategic/profitability risks, operational, cyber and compliance risks;
• implications for banks of use of innovative enabling technologies;
• implications for banks of the growing use of third parties, via outsourcing and/or partnerships;
• cross-sectoral cooperation between supervisors and other relevant authorities;
• international cooperation between banking supervisors;
• adaptation of the supervisory skillset;
• potential opportunities for supervisors to use innovative technologies;
• relevance of existing regulatory frameworks for new innovative business models; and
• key features of regulatory initiatives set up to facilitate fintech innovation.

The closing date for comment is 31 October 2017 via the following BCBS link

The BCBS consultation, Implications of fintech developments for banks and bank supervisors - consultative document, is available here