Risks

Risks How potential risks are approached in the recommendations
Data security and privacy risks are amplified as digital financing relies on growing volumes of (personal) data and a handful of IT providers Securing rights and capabilities of citizens by advancing citizen awareness and knowledge building programs, but also ensuring adequate consumer protection mechanisms and enhanced supervisory practices will contribute to reducing fraud and building trust.

Specific attention to data management and data governance, core to the development of robust digital foundations, will help mitigate data privacy and monopolization risks.

Some of these risks will be best addressed by the pursuit of catalytic opportunities, which will drive innovation and the development of the required rules and governance arrangements.

New fraud and money laundering, for example on digital marketplaces, cryptocurrency exchanges, crowdfunding platforms
Irresponsible digital financial products with opaque or misleading terms and conditions and insufficient recourse measures
Data monopolization or exploitative use of data can stifle future digital financing innovation and undermine consumer trust In addition to the above, addressing data monopolization may also be achieved by advancing corporate governance innovations and fostering international cooperation on data governance issues. In particular, empowering developing nations to have a say in the governance of global digital financing platforms originating from outside of their jurisdiction will help mitigate adverse effects of such platforms, such as data monopolization.
Cybersecurity creates user and systemic risk in digital financial services as providers resort to cloud infrastructure providers Advancing international cooperation on the governance of digital finance and in particular BigTech players will help advance solutions to addressing systemic risks caused by these platforms. This would be strengthened by embracing relevant global standards and practices that facilitate information exchange on threats.
Unfair treatment can arise from discriminatory algorithms based on biased data or hyper-personalization of financial services Development of local regulatory and supervisory capabilities in shaping digital financing ecosystems and addressing the new challenges brought by digitalization is an essential part of advancing digital financing ecosystems. This can be eased by promoting sandboxes and other regulatory and supervisory technology (RegTech / SupTech) solutions that will be essential in mitigating such risks as algorithmic biases.
Short-termism, volatility trading and herd behaviour has grown with digitalization and algorithmic trading Catalytic opportunities indirectly alleviate this specific risk by repurposing and redirecting significant financial flows towards long-term, sustainable investments. The emergence of new norms and practices stemming from systematically aligning digital finance ecosystems with sustainable development priorities will further decrease short-termism. The advancement of stress-testing standards and mandatory disclosures might further contain such risks.
Market concentration and rent-taking derives from ever increasing returns to scale and growing complexity and opacity The pursuit of catalytic opportunities will drive innovation and undermine rent-taking. Market concentration issues can be addressed through adequate governance arrangements, resulting from greater international cooperation on such governance issues or concerted governance and regulatory approaches among local regulators from different domains.
Risks How potential risks are approached in the recommendations
Data security and privacy risks are amplified as digital financing relies on growing volumes of (personal) data and a handful of IT providers Securing rights and capabilities of citizens by advancing citizen awareness and knowledge building programs, but also ensuring adequate consumer protection mechanisms and enhanced supervisory practices will contribute to reducing fraud and building trust.

Specific attention to data management and data governance, core to the development of robust digital foundations, will help mitigate data privacy and monopolization risks.

Some of these risks will be best addressed by the pursuit of catalytic opportunities, which will drive innovation and the development of the required rules and governance arrangements.

New fraud and money laundering, for example on digital marketplaces, cryptocurrency exchanges, crowdfunding platforms
Irresponsible digital financial products with opaque or misleading terms and conditions and insufficient recourse measures
Data monopolization or exploitative use of data can stifle future digital financing innovation and undermine consumer trust In addition to the above, addressing data monopolization may also be achieved by advancing corporate governance innovations and fostering international cooperation on data governance issues. In particular, empowering developing nations to have a say in the governance of global digital financing platforms originating from outside of their jurisdiction will help mitigate adverse effects of such platforms, such as data monopolization.
Cybersecurity creates user and systemic risk in digital financial services as providers resort to cloud infrastructure providers Advancing international cooperation on the governance of digital finance and in particular BigTech players will help advance solutions to addressing systemic risks caused by these platforms. This would be strengthened by embracing relevant global standards and practices that facilitate information exchange on threats.
Unfair treatment can arise from discriminatory algorithms based on biased data or hyper-personalization of financial services Development of local regulatory and supervisory capabilities in shaping digital financing ecosystems and addressing the new challenges brought by digitalization is an essential part of advancing digital financing ecosystems. This can be eased by promoting sandboxes and other regulatory and supervisory technology (RegTech / SupTech) solutions that will be essential in mitigating such risks as algorithmic biases.
Short-termism, volatility trading and herd behaviour has grown with digitalization and algorithmic trading Catalytic opportunities indirectly alleviate this specific risk by repurposing and redirecting significant financial flows towards long-term, sustainable investments. The emergence of new norms and practices stemming from systematically aligning digital finance ecosystems with sustainable development priorities will further decrease short-termism. The advancement of stress-testing standards and mandatory disclosures might further contain such risks.
Market concentration and rent-taking derives from ever increasing returns to scale and growing complexity and opacity The pursuit of catalytic opportunities will drive innovation and undermine rent-taking. Market concentration issues can be addressed through adequate governance arrangements, resulting from greater international cooperation on such governance issues or concerted governance and regulatory approaches among local regulators from different domains.