Are Fintechs a Systemic Risk?
By Penny Crosman
The fintech sector poses a growing risk to the financial system because it lacks the regulatory restraints put on banks, according to a new paper released Thursday by Federal Financial Analytics. The paper argues there are threats in a number of areas related to fintechs and big tech firms, including the potential for credit discrimination and violations of consumer privacy….“What if, for example, not only the private financial system but the Fed also were reliant on a cloud service provider? Not only could the system blow but the Fed’s ability to interact with it could go, too,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics and the paper’s author, in an interview. “It’s a classic concentration risk, but it’s in the critical infrastructure.” … “Industry regulators recognize there are significant benefits [to fintech innovation]; It’s not only really cool, but often really useful,” she said. “And everybody is afraid to monkey with it, much as in the run-up to the 2008 crisis, everyone was afraid to do anything meaningful about mortgage regulation because of the American dream of home ownership. Now we have an American ideal of technological innovation, but nothing is that perfect. Nothing is risk free.”