Supervising digital banks in a Covid-19 world
Financial supervisors will need to strengthen their surveillance and supervisory capabilities to identify emerging risks and assess how players in the market are responding to these risks.
DIGITAL banks - and other applications of new technology in financial services - sit at the confluence of public policy and financial stability objectives. Although the approach to digital bank licensing varies across the Asia-Pacific, financial supervisors have - on the whole - adopted similar narratives: financial development supports the local economy by improving outcomes for customers with more and better choices, enhanced competition and coverage, and increased financial inclusion.
Therefore, it is not surprising that licensing regimes for digital banks in the region have been observed to be broadly similar with subtle local variations. For example, most regimes require digital banks to incorporate locally, have at most one physical place of business, possess only restricted international footprints in the entry phase, and submit plans for orderly exits should they fail.
The last requirement is quite novel, as supervisors do not normally expect a licensee to fail when issuing a licence. This suggests that regional supervisors recognise that digital banks are in fact startups that carry heightened risks like any new venture, and could have spillover effects on the rest of the financial system.
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