PA Consulting’s financial services expert, Alexander McGill, is quoted in an article discussing the shortcomings of payments regulation in the wake of Wirecard’s collapse.
The article reports that as a result of Wirecard’s collapse, its UK division was forced to cease regulated activities for three days, which left millions of UK customers unable to access their accounts. This had potentially serious consequences for many who relied on their app to cover direct debits and receive payments. The collapse also underlined the vulnerability of firms dependent on third-party payment services to weaknesses in the fintech infrastructure.
Commenting on this, Alexander says: “A wide range of start-up banks and neobanks were using Wirecard to execute their payments, resulting in a large concentration risk emerging, which became clear following their collapse,”
The article observes that as a provider of payment services that could be fulfilled by another provider, and which did not hold client money or engage in lending, Wirecard was not considered particularly risky from a regulatory perspective. Its risk was hidden in its interconnectedness across the market.
Alexander goes on to say: “Regulators have the unenviable task of piecing together this complex ecosystem and identifying future concentration risks which may emerge,”
That will demand much greater global co-ordination in the supervision of fintech, given the complexities of regulating relatively small, but globally spread financial groups.
“Each regulator has responsibility for the part of the business in its own sovereign domain and its own regulatory perimeter, rather than the whole global company. This means there can often be little incentive for international regulatory collaboration given the finite resources available to each regulator” Alexander continues.
The article goes on to discuss how regulators are playing catch-up with a fast-moving industry. The regulation of fintech was initially concerned primarily with its impact on the rest of the financial services industry, before evolving into a more interventionist approach that recognised the risks to consumers and to financial stability.
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