The Bank of England is closely monitoring the emerging fintech sector to prevent financial activity moving into the unregulated shadow banking sector.
Dave Ramsden, a Bank of England deputy governor who oversees fintech, said on Tuesday: “While fintech could help increase competition in financial services, some of these new solutions might also lead to the migration of activity outside the perimeter of prudential regulation.
“So it is important that we analyse the implications of any such migrations for financial stability as well as the impact on, and strategic response of, the banks and insurers that we supervise through the PRA [Prudential Regulation Authority].
“This will be an important area of work for the Fintech Hub, working with supervisory colleagues in the PRA, in the coming months.”
Ramsden made the comments at the second day of the Innovate Finance Global Summit in London on Tuesday. He heads up the Bank of England’s Fintech Hub, which was launched last year to engage with startups and the sectors.
Fintech — short for financial technology — has emerged as one of the fastest growing sectors in the UK since the financial crisis. The sector spans everything from retail banking to insurance to small business lending.
While Ramsden flagged some risks, he said the Bank of England was “embracing fintech.”
“Fintech is enabling new players and business models to enter the market,” he said. “This is increasing competition, helping meet unfulfilled customer needs, reducing inefficiencies and changing the way institutions provide – and consumers and businesses use – financial services. “
Ramsden said the “wave of innovation will intensify in the coming years.” He flagged the likely impact of artificial intelligence, which he said has “the potential to revolutionise the nature of both work and commerce.”
“This will affect all aspects of the Bank’s mission, from the future behaviour of the labour market, through its effects on employment, productivity and wages, to the future nature of finance, through its effects on customer service, trading and risk management,” Ramsden said.
Bank of England governor Mark Carney said at the same conference on Monday that the central bank was looking at how AI could be used to supervise companies as part of a push to modernise the Bank of England.
Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.