Systemic Risk in the Financial Sector by Douglas W. Arner

Author:Douglas W. Arner
Language: eng
Format: epub
Publisher: MQUP

Fintech

The current excitement surrounding financial technology (fintech) may seem to make standardization all the more banal. Why is there a need for standardization and all of the associated upfront costs when innovations such as distributed ledger technology (which reliably stores information about transactions) and artificial intelligence might obviate the need for such infrastructure?

We believe that just the opposite is closer to the truth. Technology demands precision and interoperability, and standards help provide both.37 Distributed ledger technology and machine learning, for example, demand quality data inputs.38 Industry-wide technology standards are also critical to avoid repeating past mistakes, with siloed solutions that can’t be reconciled.

History also shows that financial-system vulnerabilities often grow just outside the regulated perimeter. With the financial system evolving at an ever more rapid rate, and the potential for new entrants to gain market share quickly, the threat of unexpected systemic disruptions cannot be ignored. New modes of gathering and analyzing disparate bits of data may yield real gains, but without quality data inputs, they could also create new information-related vulnerabilities. When the limits of these developments come to the fore, as they did with securitization a decade ago, high-quality, credible information will be critical to minimizing the disruption that results.

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