DIGITALISATION AND FINANCE - oecd.org

1 Financial Markets, Insurance and PensionsDIGITALISATION AND FINANCE This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the European Union. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

2 OECD 2018 Please cite this publication as: OECD (2018), Financial Markets, Insurance and Private Pensions: DIGITALISATION and FINANCE FOREWORD 3 FINANCIAL MARKETS, INSURANCE AND PENSIONS: DIGITALISATION AND FINANCE OECD 2018 Foreword Technology and DIGITALISATION are rapidly transforming the way in which the financial sector is operating. Innovative applications of digital technology for financial services, or Fintech, are being used to alter the interface between financial consumers and service providers and are helping to improve communication with consumers and increase their engagement. This publication compiles a series of articles that focus on the impact of DIGITALISATION and technology in the areas of financial markets, insurance, and private pensions.

3 It also discusses the tools and policies needed to ensure that the challenges posed by DIGITALISATION result in better outcomes and better management of the risks involved. The first article provides a framework to help financial regulators understand the developments in financial markets being driven by digital technologies and innovation. It does so by making a clear distinction between the underlying technologies and their applications to financial services. It also addresses how these developments are affecting the various aspects of the financial landscape, and the implications this may have for financial markets.

4 Technology and DIGITALISATION , and their related applications are also affecting the management and delivery of insurance and pensions. These developments are the focus of the second and third articles, which respectively cover DIGITALISATION in pensions and the insurance sector. The second article provides an overview of how digital technology is being used to improve pension design and delivery, and how regulators are managing the changes involved. Innovation hubs and regulatory sandboxes are emerging as key components of governments' efforts to support the development of Fintech and help new businesses understand how existing regulation applies to their ideas.

5 The third article examines the various ways in which technology and innovation are affecting the insurance sector, and where regulation and legal developments are, in turn, having feedback effects on DIGITALISATION . The article concludes with some insights into how these developments could affect the future of the insurance sector. The use of regulatory platforms to allow innovative technologies to enter the insurance market brings many benefits ( more customised insurance coverage to more people), but digital offerings need to satisfy the requirements of insurance regulations as well as wider data protection and cyber security considerations.

6 The implications of using big data and algorithms need to be carefully assessed. The final two articles focus on concrete examples of the application of technology and DIGITALISATION , and discuss the benefits, risks and challenges that digital technology and its applications bring. The fourth article provides an overview of the types of robo-advisor that are now available. The robo-advice model has emerged as one potential solution to the need to increase the accessibility and affordability of advice and support for individuals seeking to invest savings for retirement. But these models also pose risks as they challenge traditional distribution channels, and are rapidly gaining market share in 4 FOREWORD FINANCIAL MARKETS, INSURANCE AND PENSIONS: DIGITALISATION AND FINANCE OECD 2018 terms of assets under management.

7 Policy makers need to ensure that existing legislation applies with respect to the applicability of duty of care requirements, avoidance of conflicts of interest, transparency of disclosure and access to redress in the case of an unfair outcome for the consumer. Moreover, regulators and supervisors may need to have processes in place to ensure that the algorithms that these platforms use are accurate and robust. The final article focuses on another example of the application of digital technology to FINANCE , in this case the open application programming interface (API) in banking. It looks at the creation of open API standards in banking and explores the competition problems that API standards in banking address.

8 It argues that by fundamentally changing the way in which consumers buy and use banking services this method represents the development of a more entrepreneurial approach to remedying malfunctioning markets. The article also underlines the importance of competition authorities having the ability to investigate market failures on the demand side and to take action to resolve those failures, and notes that these remedies may have consequences for other markets where consumers lack property rights over the data that is collected about their behaviour. The editorial team for this edition was led by Pablo Antolin under the oversight of Flore-Anne Messy and the support of Antonio Gomes.

9 Article 1 was prepared by Stephen Lumpkin and Jessica Mosher; article 2 by Emmy Labovitch and Jessica Mosher; article 3 by Mamiko Yokoi-Arai; article 4 by Jessica Mosher; and article 5 by Chris Pike. Editorial and communication support by Pamela Duffin and Edward Smiley is gratefully acknowledged. This publication has been produced within the work streams of the OECD Committee on Financial Markets, and the OECD Insurance and Private Pensions Committee thanks to the financial support of the Japanese Government. The articles have benefitted from comments by delegates and stakeholders to these committees, the G20/OECD Task Force on Financial Consumer Protection, the OECD International Network on Financial Education, and the OECD Working Party on Private Pensions.

10 This publication contributes to the OECD Going Digital project which provides policy makers with tools to help economies and societies prosper in an increasingly digital and data-driven world. For more information, visit TABLE OF CONTENTS 5 FINANCIAL MARKETS, INSURANCE AND PENSIONS: DIGITALISATION AND FINANCE OECD 2018 Table of contents 1. Framework for DIGITALISATION in FINANCE .. 7 1. Introduction .. 8 2. What is 'Fintech'? .. 8 3. Applications of digital rechnologies in financial services .. 14 4. Aspects of financial activities and services affected by Fintech developments .. 18 5. Structural implications of Fintech innovations .. 23 6.