A Regulatory Approach to Fintech

Author:Christine Lagarde
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
A Regulatory Approach to Fintech
We must guard against emerging risks without stifling innovation
Christine Lagarde

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