Page 14 - ITU-T Focus Group Digital Financial Services – Executive Summary

ITU-T Focus Group Digital Financial Services
Executive summary

or the loss of their funds. In addition, authorities need to ensure that the risks introduced by new providers
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and business models are effectively managed to maintain financial sector stability.

For DFS authorities, the key challenges relate to striking the right balance that fosters the development of
a safe and enabling DFS ecosystem. Authorities need to enable innovation and promote competition. At the
same time, they need to mitigate risk, protect consumers, and maintain financial sector stability and integrity.
To effectively strike this balance, DFS authorities should: (i) take steps to promote competition and a level DFS
playing field; (ii) collaborate and coordinate with public- and private-sector stakeholders when developing
policy and regulation; and (iii) ensure that DFS providers are effectively supervised.
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2.2.1 Competition and level playing field
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DFS authorities can adopt a variety of measures to promote a competitive DFS environment. These include
permitting both banks and nonbanks to offer DFS, facilitating consumer switching from one DFS provider to
another, and fostering the development of a more open DFS architecture, including through open application
programming interfaces (APIs), among others. In addition, they should ensure that operators of payment
infrastructures develop risk-based, objective access criteria and that authorized payment service providers
(PSPs) can access payment infrastructures – whether via direct or indirect access – under fair and transparent
conditions.
In addition, authorities should take steps to level the playing field for DFS provision. Recommended measures
include: (i) adopting a service-based rather than institution-based approach to DFS regulation to ensure that
different providers offering the same services have similar rights and are subject to similar obligations; (ii)
ensuring that consumer protection regulations apply to all financial products provided digitally and that DFS
consumers have comparable consumer protection to consumers of traditional banking services; (iii) providing
comparable treatment of bank agents and nonbank agents with respect to market conduct regulation; and (iv)
ensuring that MNOs are not restricting other DFS providers’ access to the telecommunications infrastructure
in order to limit competition or abuse a dominant market position.

Authorities should also take steps to develop and strengthen the application of competition law principles
to the DFS ecosystem. They should: (i) use memoranda of understanding (MoUs) to delineate and coordinate
the competition-related competencies and responsibilities of different authorities/institutions and should
(ii) support efforts to build the capacity of new and existing institutions responsible for compliance with
competition law, both with respect to DFS, and in general. In addition, authorities should strengthen the
investigative and enforcement powers of these institutions, which should be able to: (i) detect, investigate,
sanction, and eliminate anti-competitive behavior; and (ii) preempt future market distortions through merger
control.

Looking to the future, DFS authorities should create a safe, enabling environment that fosters technological
innovation. Authorities should build their capacity to understand DLT and its potential impact on DFS markets.
When regulating DFS providers, instruments, and services that rely upon DLT or other FinTech, authorities
should adopt a functional approach that regulates according to the type of service (and its concomitant risks)
rather than the type of provider. In addition, DFS authorities should create space for DLT and other FinTech
innovation by developing regulatory “sandboxes” and embracing a “test and learn” regulatory approach.

22 Consumer protection is important not only for prevention of harm to consumers but also to promote adoption and continued
use of DFS. See Section 4. Understanding the DFS Demand Side (Consumers): Challenges and solutions, infra.
23 Specific recommendations with respect to DFS risk mitigation and consumer protection are discussed below in the demand-side
and supply-side sections.
24 For an in-depth discussion of DFS competition issues, see ITU FG DFS Report (2017), Competition aspects of DFS.

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