Regulators are being warned of the increasing risk of cyberattacks as the use of financial technology becomes more widespread and banks use third-party services.
The Financial Stability Board, an international body that oversees the global financial system, released a report on Tuesday citing cybersecurity among the top risks facing the burgeoning fintech sector, urging global regulators to pay closer attention to emerging threats.
Although the report didn't find any immediate threats to global financial stability caused by fintech, it warned that could change if the sector is left unchecked. The FSB study was published hours before a ransomware virus spread across Europe mid-day Tuesday, hitting multiple targets, including Ukraine's national bank and Russia's biggest oil company.
The Bank of England, meanwhile, released its biannual Financial Stability Report on Tuesday, focusing on protecting the financial system and economy against the risk of significant cyberattacks. Earlier this month, the Bank of Canada also stressed that banks need to co-operate on limiting potential for cyber-risks.
"Regulators need to understand the impact that developments in fintech can have on financial stability, especially given the rapid rise of innovation in this space," Carolyn Wilkins, the senior deputy governor at the Bank of Canada and the chair of the FSB's FinTech Issues Group, said in a release.
The FSB report recommended, in part, that regulators examine whether the same systems are being used by multiple institutions, stating the potential for sweeping disruption should those systems fail.
As part of its report, the FSB surveyed 26 jurisdictions, and what they found was that the majority had taken some steps toward regulating fintech, Canada being one of them. However, only eight had taken financial stability into serious consideration, focusing instead on some of the more micro-regulatory issues having to do with fintech services.
"Recent reports of significant and successful cyberattacks underscore the difficulties of mitigating cyber-risk," said the FSB report, which highlighted the risk of operational issues with fintech providers such as cloud computing or data services.
Fintech is increasingly becoming a focus of banks around the world. A report from International Data Corp. ranked Royal Bank of Canada and Bank of Nova Scotia as the two Canadian banks most focused on embracing fintech. This includes acquiring expertise and funding external research.
For example, Scotiabank teamed up with Atlanta-based Kabbage Inc. in June, 2016, to provide online small-business loans. Meanwhile, RBC has been working with the University of Toronto and the University of Alberta on artificial intelligence and machine-learning research.
However, Canada's contributions to the fintech space are dwarfed by those of the United States and Britain, with dominant hubs in Silicon Valley, New York and London.
Regulators, meanwhile, are trying to keep up with a changing industry. Canada is among 14 jurisdictions surveyed by the FSB that have or are planning "innovation facilitators," which support new fintechs in their countries.
OSC Launchpad, an initiative held by the Ontario Securities Commission aimed at solving regulatory issues in partnership with fintech companies, held a regulatory technology "Hackathon" in November, 2016, to brainstorm solutions. In February of this year, the Canadian Securities Administrators launched a Regulatory Sandbox Initiative that joins all the provincial regulatory bodies and provides support for emerging innovators in financial services.
The FSB found that there was a need for more data in nearly all the regions surveyed. Some businesses fell outside of regulatory perimeters or had fewer reporting obligations simply because they were too small. While there is some research done by private consultants or academics, the board points to innovation hubs and sandboxes as another vital source for data that could eventually fill that void.