to the first element : innovation. the banque de france is a proponent of digital innovation in financial services. there is no denying that technology has opened up a wealth of opportunities for innovation, and that we still haven ’ t unlocked its full potential. however, in finance, the majority of these innovations also have the potential to be highly disruptive, be it in payments, in financing ( think of crowdfunding ) or in financial markets ( think of hft, which has more questionable objectives ). we are witnessing the emergence of a fully - fledged and constantly evolving digital ecosystem. faced with the competitive threat from innovative newcomers, traditional players can respond using different strategies : establishing partnerships, acquiring fintechs or competing for new markets and activities. 2. the second element is stability. although banking and financial innovations can stimulate growth in the financial system and foster economic expansion, we know bis central bankers ’ speeches only too well that they can also be a source of instability, as evidenced by the subprime crisis. digital innovations actually expose the financial system to new forms of risk. first of all, the digitalisation of financial services presents a new issue for central banks as they perform their task of ensuring safe financial transactions ( payment, delivery and settlement ). in particular, the significant growth of decentralised trading systems, driven for example by blockchain technology, could change the conditions in which central banks perform their duties. the transition to cyberspace has also left finance exposed to the increased threat of cybercrime. lastly, the rise of digital innovation could also provide an opportunity for criminals to develop new methods of laundering money and financing terrorism. in this context, the new players in this digital era must also be fully subject to all anti - money laundering and counter - terrorist financing regulations. 3. the third element needed in order to reconcile innovation and stability and construct our “ possible trinity ” for digital finance is regulation. the regulation of financial services created in the wake of the digital wave must be tailored to its specific risks. to this end, we must adhere to two principles of action. the first principle is an absolute guarantee of payment and transaction security. in the framework of its mandate to oversee the security of payment instruments, the banque de france strives to promote innovative, effective and safe payment solutions. in this respect, it ensures that the emergence of new players and new solutions does not reduce security. central banks are also trying to take a proactive approach towards the digital transition, to avoid

francois villeroy de galhau : financial stability in the age of digital industry introducing speech by mr francois villeroy de galhau, governor of the bank of france, at the paris europlace international financial forum, new york city, 18 april 2016. * * * ladies and gentlemen, i would like to introduce this third round table by presenting the latest issue of the banque de france financial stability review entitled “ financial stability in the digital era ”. this new edition of the fsr addresses a very topical issue in the financial world, the impact of digitalisation and how to regulate such changes where necessary. i am keen to hear today ’ s exchange of views. in this fsr, we have gathered contributions from prominent academics, practitioners and policy - makers in order to shed light on the impact of innovation on financial stability. i would like to express my sincere thanks to all the contributors who have provided their views and analyses on such a technical and forward - looking topic. i cannot list all the contributors just now but i would like to give a special mention to ms karen gifford who is with us today. the contributions presented in the fsr are very diverse in nature. the aim of the fsr is to help readers form an opinion ; it is not designed to convey the explicit message of the banque de france. the core aims of our review are to exchange ideas, explore a given theme from various angles, and juxtapose different analyses and opinions. i hope this new edition will be appreciated as much as, or even more than the previous ones. before we start the discussion, let me briefly share with you some personal thoughts on this subject. the digitalisation of financial services is clearly a fascinating subject. it is also an issue that is particularly relevant at the moment, as the emergence of digital technologies is coinciding with a period of burgeoning recovery. the fact that regulators, and notably the banque de france, are turning their attention to these issues should come as no surprise. it is our responsibility, as central bankers and regulators, to strike the right balance between the obvious benefits that digital innovation can bring to the financial sector, and the need for an adequate framework to mitigate risks and guarantee financial stability. the search for this subtle balance can best be represented as a trinity comprising innovation, stability and regulation. we are thus facing a form of “ trilemma ”, and our role is to build a “ possible trinity ”. 1. with regard