WASHINGTON, October 28, 2020—Central Banks and other regulators are accelerating innovative initiatives for digital financial services to broaden access during the COVID-19 pandemic, according to a joint study by the World Bank and the Cambridge Centre for Alternative Finance at the University of Cambridge’s Judge Business School.
Access to affordable financial services is critical for poverty reduction and economic growth. For poor people, especially women, access to, and use of, basic financial services can increase incomes and resilience, and improve quality of life. Fintech innovations are helping reduce the cost of providing services, making it possible to reach more people, and reducing the need for face-to-face interactions, essential for keeping up economic activity during the pandemic.
“This research helps us better understand the experiences of regulators as they face the impact of COVID-19 and seek to increase utilization of digital financial services and FinTech,” said Caroline Freund, World Bank Global Director for Finance, Competitiveness and Innovation. “The findings show that COVID-19 has in many cases accelerated policies and programs that support a shift to digital finance, such as innovation offices and regulatory sandboxes.”
The Global COVID-19 FinTech Regulatory Rapid Assessment Study identified that 72% of regulators had accelerated or introduced innovations on digital infrastructure, with none reporting the cancellation of any of those initiatives. Regulators from Emerging Market and Developing Economies (EMDEs) are more likely to have developed new initiatives or accelerated those underway. Almost two-thirds said that FinTech had increased in priority with the importance of digital financial services during the pandemic. Regulators from 118 central banks around the world took part in the survey.
“Global challenges such as COVID-19 require global efforts and local solutions,” said Bryan Zhang, Executive Director and Co-founder of the CCAF. “We hope that the global regulatory community will find this empirical study immediately and practically useful in facilitating policy learning, formulating regulatory innovation initiatives, and informing evidence-based regulation, both during the pandemic and beyond.”
“COVID-19 is accelerating the change in the way that people interact with financial services and it has led to unprecedented demand from developing countries to progress their transition to secure and inclusive digital finance,” said James Duddridge MP, the UK’s Minister for Africa at the Foreign, Commonwealth & Development Office (FCDO), which supported this study. “I trust that this report will inform and inspire countries around the world, help support their FinTech regulatory strategies, and encourage greater collaboration across jurisdictions.”
However, for most regulators of financial services, regulatory measures taken during COVID-19 are not FinTech specific, but are sector-wide policies which may have implications for FinTech activities in relation to anti-money laundering (AML) and digital identity (49% of respondents), economic relief schemes (42%), business continuity plans (39%), measures to enhance cybersecurity (29%), and measures focusing on promoting employment and talent (17%).
Regulators reported that they are taking actions to mitigate rising risks in the FinTech market during the pandemic concerning cybersecurity (78% referencing as a top three risk), operational risks (54%), consumer protection (27%), and fraud and scams (18%). In particular, 90% of surveyed regulators from advanced economies see cybersecurity as one of the top three increasing risks associated with FinTech activities.
Although 80% of surveyed regulators felt that they have been resilient and adaptable in their response to the challenges of COVID-19, they also identified key internal challenges when it comes to the regulation and supervision of FinTech activities. Most common are challenges in performing core regulatory functions such as on-site inspections of firms (49% overall, and 65% of respondents from advanced economies), coordination with other domestic agencies (39%), access to accurate and timely data (29%), increased demand on resources (29%), and restricted access to essential information or technology (28%). Regulators in jurisdictions with more stringent pandemic measures are more likely to have indicated that domestic coordination is challenging (46% vs 34%).
The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries strengthen their pandemic response. It is supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs. The WBG is making available up to $160 billion over a 15-month period ending June 2021 to help more than 100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans and $12 billion for developing countries to finance the purchase and distribution of COVID-19 vaccines.
2020 Global COVID-19 FinTech Regulatory Rapid Assessment Study
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