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Fintech reshapes financial industry landscape; brings challenges

November 1, 2018
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Fintech reshapes financial industry landscape; brings challenges

Adnan Yousif

MANAMA: As the technology innovation is rapidly reshaping the financial landscape, there are major risks associated with the rise of FinTech on banks, says Adnan Ahmed Yousif, Chairman, Bahrain Association of Banks (BAB).

Mr Adnan in his keynote during the maiden annual forum titled ‘Fin tech: Opportunities and Challenges’ said that in terms of strategic risk, banks may lose a large part of their market share or profitability if FinTech startups are able to innovate and deliver less expensive services that better meet customer expectations and reach wider customer segments.
The other risks include, the systemic operational risk is seen as financial technology leads to more IT interconnectedness between banks and FinTech startups, which could cause an IT risk event to escalate into a systemic crisis, especially if services are concentrated in a few dominant players.

Other challenge is how the banks and financial institutions can meet the compliance requirements mainly AML/CFT. “FinTech innovations including the decentralized distributed ledger technology and crypto currencies greatly facilitate cross-border transactions, which complicates the monitoring of transactions for financial institutions, authorities, and regulators, thereby increasing the risk of money laundering and terrorism financing.”

“Data Privacy Violation Risk can eb another irritant as with financial technology, information can be distributed online and across networks (such as the blockchain), which jeopardizes data privacy.

“Cyber security Risk is also looming as according to the Global Risks Report 2018, cybercrime is the third top risk by likelihood, followed by data fraud and theft. Increased interconnectivity between market players can create benefits for banks and consumers, while amplifying cyber-security risks. Heavier reliance on APIs, cloud computing and other new technologies could potentially make the banking system more vulnerable to cyber-threats, and expose large volumes of sensitive consumer data to potential breaches.”

“Regulators today face a trade-off between mitigating financial stability risks and fostering financial innovation and inclusion. Hence, the need arises for a comprehensive legislative, regulatory and supervisory framework which fosters innovation and provides growth opportunities for FinTech startups in a competitive environment, while ensuring that new technologies do not become tools for fraud, money laundering and terrorist financing, without deterring innovations in financial services, especially those aimed at SME financing and financial inclusion,” Mr Adnan said.

“Bahrain has had a long history of proactive adoption of new technology. In the past few years the CBB has taken a number of important steps in this regard such as the Regulatory Sandbox for Fintech and associated infrastructure and regulations. We appreciate also EDB’s pioneer efforts in encouraging FinTech by driving the establishment of Bahrain FinTech Bay. These new initiatives are continuation of CBB efforts to provide the right mix of policies and products to develop and enhance the quality and competitiveness of services in the financial sector,” he said.

“Banks in Bahrain were responded quickly to these efforts by initiating innovative digitalization products and services for their clients. The banks in Bahrain are fully aware of the challenging nature of Fintech to business models and jobs but they have made a conscious decision to adopt it. The pace of innovation is not reversible, so the only choice we have is how well we prepare ourselves for the challenge.”

Therefore, he added, BAB Forum has put in the spotlight the issues that facing banks efforts in this field, such as human capital, training, ecosystem and infrastructure, regulations and etc., and hope, through papers presented and discussions to come out with recommendations facilitating the moving ahead for all of us.

Tags: Adnan Ahmed YousifBahrain Association of Banks (BAB)Fintech Forum 2018
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