A Regulatory Approach to Fintech

• Author: Christine Lagarde
• Pages: 9-10

June 2018 | FINANCE & DEVELOPMENT 9

STRAIGHT TALK

IN THE 19TH CENTURY, when Alexander Graham Be ll

was awarded a patent for the telephone, the only

way to communicate rapidly over long distance s

was by telegraph. e dominant company in t hat

market dismissed Bell’s invention as a useless toy

and rejected an opportunit y to buy his patent. e

rest, as they say, is history.

is anecdote illust rates the disruptive and unpre-

dictable nature of technologica l innovation. Today,

some enthusiasts say crypto a ssets may represent

the beginning of a simi lar breakthrough. Others

condemn crypto asset s as little more than a fad

or a fraud. We should not dismiss them so lightly.

Crypto assets a re just one example of how new

technologies are being used to del iver nancial

services— Fintech for short. In Kenya and China,

mobile payment systems have brought millions of

previously “u nbanked” people into the nancial

system. In Latv ia, Brazil, and elsewhere, peer-to-

peer lending has opened up a new source of credit

for small businesses t hat have trouble borrowing

from a bank.

Around the world, advances in a rticial intelli-

gence promise to extract more value from d ata that

is ever more abundant and ubiquitous. Its appli-

cations in the realm of nancial servic es include

enhancing fraud protection and reg ulatory com-

pliance, potentially ex panding access to nancial

services, and deepening nancial i nclusion.

Fintech oers considerable promise, but it also

poses risks. Consider d istributed ledger technology,

which underpins cry pto assets. It can enable faster

and cheaper transa ctions, from trading securities to

sending money to relatives abroad. It can be us ed

to securely store records suc h as diplomas and real

estate deeds and to automatica lly execute so-called

smart contracts. But clea rly the technology has also

been used for illicit purposes.

How should regulators respond? eir task isn’t

an easy one. On the one hand, they must protect

PHOTO: IM F

A Regulatory Approach to Fintech

We must guard against emerging risks without stif‌ling innovation

Christine Lagarde