Origin, Role and Supervision of Fintech Firms

Abstract

The changes in national financial systems during the last two decades are reflected, inter alia, in the emergence of Fintech firms. The name is a portmanteau from the words finance and technology. These include online platforms for raising and lending funds, robots-consultants, crypto currency trading, securities trading, electronic payments, digital investment management. They do not have to comply with prudential regulations as banks. They have become competitors to banks in performing banking operations. In order for someone to do business with Fintech firms, it is enough to have a mobile phone. In their business, they are exposed to financial and operational risks. Financial risks can occur in the form of maturity mismatch risk and liquidity mismatch risk. Operational risks can be caused by human error and inadequate information systems. For ten years now, Fintech firms have been operating in European countries undergoing transition. The governments of these countries have also encouraged the proliferation of Fintech firms by establishment of innovation authorities. In recent years, the operations of Fintech firms have been more adequately regulated by supervisory institutions by enacting regulations that cover their operations. The European supervisory institutions have enacted measures that are related to business operations of Fintech firms, but despite these efforts, regional differences between EU member states are still present.