The Consob president turns the spotlight on regulatory challenges: "Too much fragmentation slows down innovation and puts consumers at risk. Experimentation, transversality and coordination are the pillars of a new paradigm. Basel3 is the example to follow "

25 Oct 2021

Federica Meta Journalist

"The use of an international regulatory framework to address the problem related to the growth and development of cryptocurrencies on the markets is an issue to be addressed". This was stated by Paolo Savona, president of Consob, opening the proceedings of the conference "Regulating innovation in the financial system to power resilient recovery", organized by the supervisory authority as part of the G20.

More generally - he explained - to "inspire more trust" on the part of the regulatory authorities, it is necessary to "establish knowledge and skills at national and international level" in order to "tackle the thorniest problems", including precisely the growing market of cryptocurrencies.

Index of topics

• The information asymmetry

• Change the paradigm

The information asymmetry

According to Savona, the issue of fintech determines a "social dilemma, economic freedom and protection of less informed savers".

"It is known that information asymmetry undermines efficient competition - pointed out Savona - Technological innovation in finance can exacerbate this asymmetry and, in principle, can influence the allocative performance of financial markets to produce income and employment, and is now extended to include Environmental Social Governance (ESG) issues ".

"Consob - recalled Savona - like many regulatory authorities in the world, must define detailed rules and regulations to identify the regulatory framework, taking fully into account these explosive waves of innovation".

Trends that, Savona pointed out, "have produced not only a fragmentation in the actions of multiple regulatory agencies, but also an asymmetry in the definition of the rules, as national and international regulatory agencies often respond differently to priorities and different mandates ".

In this sense, the real risk "is the proliferation of a mixture of different regulatory frameworks between different regulatory agencies, which can be very fragmented and perhaps have many overlapping and inconsistent aspects".

"The cause of this risk - continued the president of Consob - is to be found in the current system of sector regulatory agencies, each operating in its own sector. This system is ill-equipped to cope with the pressing technological disruptions we are experiencing. For example, operational risks

and stability, such as those posed by the spread of cryptocurrencies, are often moving outside the current regulatory and supervisory perimeters, thus demonstrating that the boundaries of these parameters are becoming increasingly blurred ".

Changing the paradigm

For the president of Consob, therefore, a change in the regulatory paradigm is needed based on three elements: experimentation, transversality and international coordination. "I believe that regulation should be considered as a complementary source of innovation and take the example of the Basel 3 agreement which has favored the flowering of a decade of financial innovations never seen before. In this context - Savona pointed out - it is of fundamental importance for regulators to develop and test new approaches ".

Experimentation and live testing allow regulators to understand and reduce the risks emerging from new technologies, ensure compliance, and ultimately drive improvements in regulation. "

With regard to transversality, Savona proposes to "reorganize regulatory authorities to work within, for example, a hub-and-spoke system that focuses on activity-based regulation and replaces entity-based skills. The transversal approach, I believe, is at the heart of a true collaboration and therefore of an innovative approach to regulation ".

In the opinion of the Consob president, the new role of the regulatory framework can become "the cornerstone in the development of innovation. By doing so, regulation can therefore transcend traditional boundaries and expand the mandate to incorporate financial inclusion and sustainability. "

The crisis triggered by the pandemic, Savona recalled, "has also accelerated the trend towards an economy with a more sustainable approach to investments and has strengthened the need to link sustainability and digital and financial inclusion".

The conference organized by Consob therefore aims, he added, to initiate dialogue across borders, between agencies and between market players in order to address the most significant problems through a collaborative approach to regulation. And this is because we strongly believe in a more cross-sectoral approach to financial market regulation.

Savona concluded by proposing "a new International Conference on financial and monetary issues, and proactively taking charge and regulating technological innovations under the aegis of sustainable and inclusive finance for all".