Leila Matroos-Lasten: Central banks should emerge as innovation
leaders
Opening speech delivered by Mrs Leila Matroos-Lasten, Acting President of the Central Bank of
Curaçao and Sint Maarten, on the occasion of the Bridging Financial Innovation and Regulation
Seminar, Willemstad, 29 June 2018.
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The Minister of Finance of Curaçao, Mr. Kenneth Gijsbertha
Distinguished guests, ladies and gentlemen, good morning.
It gives me great pleasure to welcome you all, and in particular, our guests coming from abroad,
to the second day of the hosted by
Bridging Financial Innovation and Regulation Seminar,
the Centrale Bank van Curaçao en Sint Maarten (CBCS). The topic of this seminar is one that
most central bankers are currently struggling with nowadays: How is the digital revolution
affecting the financial system? What is the impact on consumers, the economy, and on central
banks themselves?
As I noted yesterday, the central bank of the monetary union of Curaçao and Sint Maarten is
responsible for, amongst other things, promoting a sound and efficient functioning of the financial
system in Curaçao and Sint Maarten. This is why the main focus of today's session is on
financial innovation, the rise of FinTechs, and the regulatory challenges that regulators are facing
in this new era.
FinTechs are innovative financial technology firms with the capacity to provide a variety of
financial services that can include enhanced benefits such as lower transaction costs, a more
efficient financial intermediation process, and better access to financial services for a larger
section of the society. However, FinTechs also can present potential problems. Recently, the
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General Manager of the Bank of International Settlements (BIS), Agustin Carstens , stated that
"financial authorities may not clearly understand the risks attached to some of the services being
offered by FinTechs, leading to unforeseen accidents and then delays in the adoption of financial
innovations". Therefore, the challenge for central banks is to ensure that the FinTech industry
progresses in a way that maximizes the opportunities and minimizes the risks for society.
Ladies and gentleman, regulators are currently searching for ways to safeguard their financial
system while exploiting the benefits of FinTechs. In fact, numerous agencies are piloting new
approaches based on technological solutions developed by two subsets of FinTech: RegTech
and SupTech. Important business opportunities arise for RegTech from the trade-off between the
need for organizations to stay compliant with the rapidly changing regulations and the need to
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remain profitable, while SupTech is focusing on the challenges faced by supervisory agencies .
The payment infrastructure is one of the examples where innovation has developed quickly with
payment tools available directly through an app on a smartphone or even on a smartwatch
nowadays. The issuance of Central Bank digital currency, which is a digital version of cash,
could be seen as a natural consequence of the broader process of digitization of the financial
system. In a world where assets are being traded electronically and payments are being made
with smartphones, should there only be room for physical cash?
Central Bank Digital Currency
Ladies and gentlemen, distributed ledger technology is currently reshaping the financial system
and is here to stay in one form or another. If this financial revolution is not embraced by
regulators, private players will continue to innovate and drive the development of alternative
technologies, new payment methods, and digital currencies. Central Banks need to become
active shapers in the current debate to fulfill their mandates and drive change as active agents
rather than passive bystanders.
Given some of the shortcomings of cryptocurrencies pointed out by the BIS, some people have
supported the idea of central banks issuing their own digital forms of currency as more stable
and reliable alternatives to cryptocurrencies. Let's face it: a central bank digital currency could
overcome the volatility risks of an unbacked asset with no intrinsic value. In addition, central
banks are in better position to develop a robust financial infrastructure that provides a secure
environment for both domestic and cross-border transactions. With the recent shift in the interest
of central banks, it is not unthinkable to assume that digital cash will one day dominate the
payment infrastructure.
Financial Innovation
Ladies and gentlemen, as I noted a few minutes ago, the FinTech industry is designing new
services that better adapt to users' needs in order to expand its business. In doing so, FinTechs
try to find the right balance between the opportunities in the market place and the financial
regulation they have to comply with. However, FinTech will aim at enhancing profitability and,
therefore, may not have the right incentives to reach a socially viable equilibrium.
The greatest challenge for central banks is to find the right balance between the clear benefits
that financial innovations have on growth and identifying and mitigating the associated risks. The
interaction between regulation and innovation is a two-way street. It is not just that change in the
financial sector will impact the way regulatory bodies implement regulations, but also that the
regulatory framework will affect the speed and direction of transformation in the financial sector.
Thus, a sound regulatory framework is imperative for private services providers to develop
secure and efficient financial services and for authorities to keep the confidence of user in the
regular functioning of the financial system.
Regulators who are not willing to embrace (regulatory) innovation are at risk of being left out of
the potential advantages and benefits of the current financial revolution. If that happens, then the
emerging FinTech financial services sector may not be able to develop its technology further,
and businesses and households will be deprived of the benefit of the technological revolution.
Furthermore, financial services can migrate to the less-regulated parts of the financial system.
Allowing risk to build up in an unregulated sector may impair financial stability in the long run and
reverse all the progress that has been achieved in the past.
Closing Remarks
Ladies and gentlemen, to bridge regulation with financial innovation, we first need to understand
innovation and how technological advances can aid regulation and vice versa. Regulation should
not stifle creativity, innovation, and technological advances that can aid our markets and market
participants.
New technologies entail new types of risks. Although risk related to cyberattacks and data theft is
what first comes to mind, authorities also have to recognize the risks that financial innovations
pose to the stability of the financial system as a whole. Finding the right balance between
facilitating innovation and ensuring financial stability and consumer protection is an inherently
difficult task. Unfortunately, no quick fix exists.
Innovation and technology are transforming and reshaping the existing financial system in a way
we still do not fully comprehend. Therefore, bridging regulation with financial innovation requires
central banks to emerge as innovation leaders.
Ladies and gentlemen, let me conclude by emphasizing that the main asset of a Central Bank
today is not the cash stored in the vaults, but the trust of the public. Recognizing the FinTech
revolution and adapting to continue to meet regulatory objectives, ensures that financial
innovation can contribute to economic stability and social welfare. Only by doing can central
banks remain worthy of the public's trust.
I thank you for your attention and wish you a fruitful second day at the conference.
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Banker to central bankers - Interview with Mr Agustín Carstens, General Manager of the BIS, conducted by Mr
Vikram Khanna from Business Times and published on 24 March 2018.
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Reference: Toronto Centre - FinTech, RegTech and SupTech: What They Mean for Financial Supervision -
Published on August 2017