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The rise of fintech is set to fundamentally change the financial services industry, forcing banks to change their operating models and requiring regulators to adapt to address risks while promoting innovation, says a new paper from the Basel Committee on Banking Supervision.

Market observers are still divided on the effect that fintech will have on banks and their business models, with some predicting that up to 40% of revenues could be at risk over the next 10 years and others believing that that established players will simply absorb the new competitors, thereby actually boosting their own efficiency.

What is not in doubt is that technological innovation and changing customer expectations mean that banks will find it increasingly difficult to maintain current operating models.

The Basel Committee says that new models mean that banks and regulators need to be aware of new supervisory issues. In its Sound Practices paper on the implications of fintech, it has identified 10 observations and made related recommendations.

The paper says that while the nature and scope of banking risks as traditionally understood may change, regulators need to ensure that they don't inhibit beneficial innovation. The committee highlights strategic and profitability risks, operational, cyber and compliance risks as the key fintech-related concerns.

The paper also calls on banks and regulators to consider the implications of the use of innovative enabling technologies, as well as the growing use of third parties, via outsourcing and partnerships.

For regulators, it calls for cross-sectoral cooperation between supervisors and other relevant authorities, international cooperation, and the use of innovative supervisory technologies.

Interested parties have until the end of October to comment on the paper, which you can read in full below:

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