The system has remained resilient through several episodes of market stress, ranging from the 2014 US Treasury “flash crash”, and the 2015 Swiss Franc de-pegging to the 2016 Brexit vote. What have been the overall effects of the reforms? Work in this area is nascent, there are no clear answers yet. But let me sketch some of the key issues. In each of these areas, we are confronted with the problem of attribution. It appears that regulation has had some role but we do not know how much of a role alongside other factors. Let me begin with market liquidity. There are concerns that liquidity has declined in some markets. Preliminary evidence indicates there is less depth and potentially less resilience under stressed market conditions3. Some of the blame has been ascribed to the emergence of more automated trading, which has little to do with regulation. 2/9  BIS central bankers' speeches  But other factors – such as less market making by dealer banks and increased post-trade transparency in corporate bond markets – appear to have stemmed from regulation. Second, bank profitability. The profitability of several large banks today is below the cost of capital. This is worrying. Banks need to be profitable in order to be strong. Retained earnings are one of the major sources of equity – which is the highest quality capital that banks hold. Unprofitable banks are a potential source of instability. Banks also need to be profitable to be able to support the real economy.

The benefit of such give-and-take is a safer global financial system that benefits all countries. Positioning regulation for technological innovation and cyber risks Let me move now to the second key priority of financial regulation going forward – positioning for the technological innovation sweeping the industry and the challenge of cyber security. FinTech or the application of technology to financial services is transforming as well as disrupting the industry. Digital payments are becoming more widespread, propelled by advances in near-field communications, identity authentication, and biometrics. Internet-enabled distribution platforms are emerging that make financial products directly available, e.g. peer-to-peer lending, crowd-funding, and pay-as-you-use insurance models. The smartphone is becoming your bank, your insurance broker, and your investment adviser. Blockchains or distributed ledger systems are being tested for a variety of financial operations – to settle interbank payments, to reconcile trade finance documentation, to execute performance contracts. Cloud technology is being used to store large volumes of data at low cost and retrieve them on-demand. Big data – aggregating and analysing large data sets, including through the use of sensor networks and natural language processing – is being used in many areas of finance: to gain richer insights into customer needs, to detect fraud in financial transactions, to sharpen surveillance of market trends. Regulating FinTech How should regulation deal with FinTech? First, we need to develop a deep understanding of these emerging technologies and the risks and opportunities they present. Financial regulators should not be afraid to work collaboratively with financial institutions or even FinTech companies.