FinTech Risk – Fact or Fiction?

Traders Magazine Online News, November 7, 2017

John D'Antona Jr.

How is Wall Street managing the wave of new financial technology?

Technology often is filled with the promise that it will make life better and viewed as an enabler of creating a more efficient, profitable and competitive organization. But for all the hype and expectations of the current fintech revolution, is Wall Street doing enough to identify and manage the associated risks?

The Depository Trust & Clearing Corporation (DTCC) is asking this question – and attempting to help trading firms, technology vendors, regulators and others become more aware of how these new technologies may impact the safety and stability of the financial system. In a recently released white paper Fintech and Financial Stability – Exploring How Technological Innovations Could Impact the Safety & Security of Global Markets, DTCC cautions that while fintech adoption benefits the financial services industry in areas such as improving client experience, strengthening critical infrastructure components, creating efficiencies and reducing costs, it could also pose or exacerbate certain risks, including cyber security concerns and other third-party risks.

DTCC has created a framework of nine factors that firms can use to evaluate fintech’s potential systemic impact. Among some of the issues the DTCC examines:

1. While the transformative potential of fintech holds great promise, it could also have risk-related implications that are systemic in nature. What are the key considerations when determining fintech’s potential impact on systemic risk?
2. Interconnectedness is a key dimension of systemic risk and has become a critical topic for market participants in recent years. What role can fintech play in helping to mitigate interconnectedness risks?
3. The industry has made great strides since the financial crisis in improving market transparency and enhancing the ability of regulators to understand the nature of risk in the financial system. How are global regulators addressing fintech and systemic risk today?
4. Fintech involves a number of transformative technologies -- including robotics, machine learning and artificial intelligence – which hold great potential to transform the landscape of financial services. What are some of the unique challenges these technologies present to systemic risk?

The entire White Paper can be viewed here.

While many fintech offerings are still in their early stages, which makes it difficult at this time to fully assess their impact on financial stability, DTCC recommends that the rapid growth of fintech adoption requires close monitoring to identify emerging systemic risks on a timely basis. Further, DTCC suggests that  impact analyses should be conducted on a case-by-case basis, given the wide range of underlying applications under consideration for fintech upgrades, each with their own characteristics and specific context.

For more information on related topics, visit the following channels:

• Technology
• Clearing