Financial Technology (FinTech) is the application of technology in financial services in a manner that drives the transformation or disruption of traditional processes in financial system.
In the Philippines, FinTech has transformed the delivery of financial services from branch banking to online banking, paper-based money to electronic money, and face-to-face customer verification to technology-aided know-your-customer process, among others.
Aside from enhancing consumer experience, FinTech transcends geographical barriers and enhances transparency and reduces the cost of financial transactions. Hence, the Bangko Sentral ng Pilipinas (BSP) deems FinTech as a potent tool for promoting Financial Inclusion.
In view of this, the BSP has identified the responsible promotion of FinTech as a priority BSP agenda. Under this agenda, the BSP strikes a right balance between enabling useful innovations and managing associated risks; and pursues a FinTech roadmap covering Collaborative Engagements, Commensurate Regulations and Capacity Building.
FinTechs commonly engage in emerging business models and technologies which are often beyond the supervision of financial regulators. For this reason, the BSP actively engages fintech players and innovators through a flexible “test and learn” environment or the “regulatory sandbox”.
“This approach has served us well since it has enabled us to fully understand new business models, assess risks and employ mitigating actions when necessary while allowing benefits to be realized from these new technologies,” the BSP said.
Aside from engaging Fintech players, the BSP collaborates with other financial regulators to ensure policy consistency, prevent regulatory arbitrage and promote expansion of innovations. The BSP also participates in domestic and international information-sharing fora on such topics as technology risk management, innovation, payment systems and cybersecurity.
In November 2017, the BSP signed a Fintech cooperation agreement with the Monetary Authority of Singapore covering information sharing and referral system specifically focused on FinTechs operating in the two countries.
In August 2018, a FinTech Committee was also created under the Financial Sector Forum (FSF) which is composed of the BSP, Insurance Commission, Philippine Deposit Insurance Corporation and the Securities and Exchange Commission. Under this committee, the FSF shall harmonize its regulatory responses to Fintech innovations in the financial sector.
“Through increased collaboration, financial regulators can quickly anticipate changes, assess technological trends across different sectors, and optimize the potential of digital innovations to provide more convenient, and efficient financial services,” the BSP added.
Meanwhile, in crafting commensurate regulations, the BSP has implemented key policy changes espousing the principle of “proportionality”. Towards this end, the BSP has progressively implemented banking laws and regulations to fully develop the country’s digital financial ecosystem and to enhance the management of operational, technology, business continuity, Anti-Money Laundering/Countering Financing of Terrorism and cybersecurity risks by BSP Supervised Financial Institutions.
Moreover, the BSP has adopted an activity-based approach in supervising and regulating non-bank institutions that are engaged in money service business operations. Prudential requirements are anchored on activities performed by these entities and differentiated regulations are imposed depending on the risks that may arise from these activities.
As part of BSP’s proactive FinTech risk supervision and oversight, the BSP is also exploring RegTech (regulatory technology) and SupTech (supervisory technology) solutions that cover regulatory reporting, consumer complaint oversight and regulatory compliance automation to enhance the timeliness and quality of BSP’s risk-based decision-making. The central bank also established in 2018 a dedicated Financial Technology Subsector to institutionalize the operational and cyber-resilience of the financial system.
“The BSP foresees that the digital future will continue to disrupt traditional boundaries, introduce exciting opportunities as well as a host of emerging threats and risks. Striking the right balance between promoting financial innovation on one hand, and consumer protection, security and financial stability on the other—is an ongoing challenge,” said the central bank.
“By consistently implementing the BSP roadmap through collaborative engagements, commensurate regulations and capacity building initiatives, we hope to realize the full potential of FinTech to uplift the lives of all Filipinos,” the BSP emphasized.