Bundesbank President: FinTech needs regulation

8 years ago - Published in Finance, Fintech Land, Technical Analysis

Blockchain or distributed ledger technology has turned out to be a multi-purpose tool, Dr Jens Weidmann, President of the Deutsche Bundesbank, said in Berlin.

Speaking at the G20 conference, where leaders from the international organization are meeting in Germany to discuss issues around the digitization of finance Weidmann said: "Originally developed for the bitcoin virtual currency, this distributed ledger technology, it would appear, has turned out to be a multi-purpose tool. And even central banks – which aren't typically known for being early adopters of new technologies – are currently doing experimental research on the potential use of blockchain." 
In his  opinion, while banks still exist and will continue to do so, non-banks are just as capable of providing bank services. He added that huge strides made in the field of information and communications technology (ICT) has not only opened up a whole new world of possibilities for designing and distributing financial services, but also transformed traditional banking business.  

“Digital finance, and the fintech industry in particular, have experienced very rapid growth in recent years on the back of both supply-side and demand-side forces”, he said.

But while hailing the many benefits of financial inclusion, Weidmann warns that there is a trade-off between it and financial stability.

"Expanding access to financial services – especially to credit – at too fast a pace and with too little control exposes economies to stability risks, and households to the risk of over-indebtedness," he says.

To mitigate the risks, it is essential to get a clearer picture of fintech firms' business activities, says the central banker, adding that it is vital for the Financial Stability Board to investigate and promote data availability.

On regulation, he says: "Our aim is to develop a set of common criteria for the regulatory treatment of fintechs.

At the same event, Bank of England Governor Mark Carney had said that the BoE is looking into the policy and technical issues posed by Central Bank Digital Currencies (CBDC) and developing blockchain proof-of-concepts.

In November 2016, the Deutsche Bundesbank and Deutsche Börse jointly presented a functional prototype for the blockchain technology-based settlement of securities.