Robust cybersecurity vital for inclusive FinTech & sustainable finance

Robust cybersecurity frameworks are essential to the overall health and stability of financial systems, particularly as economies increasingly promote digitalization as part of COVID-19 recovery efforts, speakers said at a high level virtual AFI capacity building event on 6-8 October.

Co-hosted by Luxembourg’s Ministry of Finance and Ministry of Foreign and European Affairs, and AFI, in collaboration with the University of Luxembourg, an AFI leaders’ joint learning program (JLP) on inclusive financial technology (FinTech) ecosystems and cybersecurity was organized for heads of AFI member institutions, central banks, finance ministries and other regulators, as well as technical staff.

Luxembourg’s Minister of Finance, Pierre Gramegna, addressed the participants in a video messages on the opening day, highlighting the merit of developing regulatory frameworks that combine cybersecurity, digitalization and sustainable finance.

“We take inclusive finance very seriously, as we take digital challenges and sustainable finance,” Minister Gramegna said, adding that these represent the pillars on which Luxembourg built diversification in its financial sector.

While the country is today considered a financial innovator, he said that this reputation had been built over decades on three principles that had established high levels of competitiveness and trust: predictability, legality and innovation.

Around 115 people in 45 countries attended the three-day JLP, including Central Bank of Egypt Governor Tarek Amer, who noted in his opening remarks that greater emphasis on stakeholder collaboration needed to foster sustainable economic development, including in investment and structural reform. This, however, was not always easily obtained.

“The financial services industry needs to see FinTech not as competitors but as partners, and Fintech needs to keep customers at the heart of innovation,” said Governor Amer, who also chairs AFI’s board of directors.

Playing its part in enhancing ties and sharing knowledge between developing and developed countries, he said, was AFI’s new office in Luxembourg, which would enhance the network’s understanding of how to create enabling FinTech ecosystems that accelerates innovation in financial services.

“The kind of benefit of transfer of knowledge is much more valuable than any financing,” he said.

AFI officially launched its Europe Representative Office a day earlier, co-hosted by Luxembourg’s Ministry of Finance and its Ministry of Foreign and European Affairs to, among other things, expand opportunities for peer learning and knowledge exchange among regulators across the continent and beyond.

Franz Fayot, the country’s economic minister, reiterated the value of multi-stakeholder collaborations that help regulators secure financial transactions against cybercrime and ensure the safety of data.

“Criminals can attack mobile networks in many ways, potentially reducing the reliability of mobile financial services,” he said, adding that nearly 80 percent of people in developing countries have access to mobile phones. He also encouraged regulators not to let fear of competition and vulnerability inhibit collaborative efforts.

“We promote an open-source community of cybersecurity expertise … to facilitate access to expertise and strengthen our joint response capacity,” he said.

Growing reliance on innovative digital and FinTech has created opportunities to faster implement digital tools for expanding financial inclusion, it has also exposed the weight of maintaining regulatory standards.

AFI Executive Director Dr. Alfred Hannig called on participants to develop and implement cybersecurity frameworks that enable economies to keep their digital infrastructure secure as more and more businesses embrace online and virtual platforms.

He said that “investment in cybersecurity will be a key differentiator for economies going forward,” but one that is also a “shared responsibility” among regulators. He explained that the cross-border nature of cyber thefts had made it vital for governments and agencies to adopt multi-stakeholder approaches and forge international cooperation.

Bank of Ghana Deputy Governor Elsie Addo Awadzi added that while cybersecurity was a “national priority with a national governance structure,” cross-border cooperation remained largely absent across the field.

“A lot of big banks and other deposit-taking institutions, telecommunications companies and even some FinTechs operate on a cross-border basis and yet we are not seeing a lot of cross-border cooperation that ensures that their operations are astute and well-regulated,” she said.

Jose Quesada, vice president of regulatory policy at Mexico’s Comisión Nacional Bancaria y de Valores added that with FinTech and new technologies moving faster than regulation, it was more imperative than ever to enable cross-border cooperation.

“We must have very close collaboration among authorities to protect FinTech ecosystems and allow them to grow healthily,” he said. Mexico, he said, has nearly 400 FinTechs in operation, making it the largest FinTech ecosystem in Latin America.

“We truly believe that FinTech will push up financial inclusion in our country,” he said, adding that he was harnessing learning from regulators in Africa and elsewhere to find best solutions for challenges faced in his jurisdiction.

In agreement was Superintendencia de Banca, Seguros y AFP del Perú Deputy Superintendent of Risks Alejandro Medina, who said that partnerships were crucial to staying current.

“The need for cooperation and sharing information is key, so we have to really integrate public and private activities and operational activities,” he said.

In agreement was Commission de Surveillance du Secteur Financier (CSSF) Director Jean-Pierre Faber, who said that regulators’ three responsibilities were to protect consumers, educate the population and manage complaints.

He added that while there Luxembourg has a large number of frameworks in place, he said that cyber threats were becoming more sophisticated, requiring more investment in training staff and consumers so that they are aware of cybercriminal activities.

A greener tomorrow

Intensifying efforts to promote sustainable economic development, many speakers also underlined the importance of innovation in green technologies and climate financing in contributing towards the Paris Agreement.

According to Luxembourg’s Minister for the Environment, Climate and Sustainable Development Carole Dieschbourg, international climate financing plays an crucial role – both at the international and institutional level – in ensuring that no one is left behind, particularly vulnerable communities.

For its part, Luxembourg is already making huge strides as a global leader in green finance by launching the world’s first green exchange in 2016 and raising EUR1.5 billion (USD 1.7 billion) last month through the sale of the first “sustainability” bond issued by a European government.

AFI members, including Morocco’s Bank Al-Maghrib and Ecuador’s Superintendencia de la Economía Popular y Solidaria (SEPS), were also leading the charge.

Abderrahim Bouazza, general director at Bank Al-Maghrib highlighted how Morocco’s financial sector was being incentivized to play its part in achieving 72 percent renewable energy by supporting green startups and clean energy projects.

Meanwhile, SEPS Superintendente Dr. Margarita Hernández highlighted how the organization was supporting sustainable development through transparency (including security of information), strengthening (including strategic partnerships) and financial inclusion (including financial literacy and inclusive green finance), with the latter being integrated at the national level through strategies on financial inclusion and climate change.

“We are committed to promoting digital and financial literacy and inclusive green finance into every level of our work,” she said.

Together with its co-hosts, Ministry of Finance and Ministry of Foreign and European Affairs, and in collaboration with University of Luxembourg, AFI held four days of virtual events, to inaugurate its Europe office, along with  a high-level discussion, followed by the JLP.

Luxembourg’s Ministry of Finance signed a letter of understanding with AFI in September 2019 that helped launched a multi-donor collaboration framework designed to bolster financial inclusion across the African continent. Together with the French Development Agency (AFD) and the German Federal Ministry of Economic Cooperation and Development (BMZ), the Multi-Donor Financial Inclusion Policy Implementation Facility is helping AFI foster financial inclusion with a focus on gender equality, including digital financial innovation and financial technology, financial education and finance for small, medium-sized enterprises.

AFI’s Inclusive Green Finance (IGF) workstream is part of the International Climate Initiative (IKI)  supported by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), based on a decision of the German Bundestag.