Rising importance of this topic is clearly demonstrated by the adoption of the Bali Fintech Agenda of the IMF that provides guidance for national authorities on how to cope with new and evolving financial landscape, and underlines the need for stronger international cooperation as financial services are blurring boundaries, both institutionally and geographically. In what follows, I would like to briefly focus on the challenges of fintech developments for the banking industry and policy makers. We do have to take into account that digitalization of banking is not a new phenomenon; it has been present for more than 3 decades (in the form of automated teller machines, electronic payments, e-banking). The emergence of fintech is only the latest wave of innovation to affect the banking industry. Still, in the last decade, a significant change has occurred in the way of using technology, thus creating environment in which disruption can happen more quickly, and urging traditional banks to adjust faster to maintain market share. Besides the advancement in technology, a few other factors have also contributed to proliferation of financial innovation. The fact that banking industry was dealing with the legacy issues of the global financial crisis-impaired balance sheets, perhaps was important factor that provided space for non-banks to penetrate in financial business. Also, banks’ resources to a great extent were tilted towards implementation of the new Basel 3 requirements aimed at increasing the resilience of the banking system.
8  BIS central bankers’ speeches  The Icelandic authorities have a strategy in place to lift the capital controls gradually, as conditions permit, without unduly undermining exchange rate and financial stability. The strategy is currently under review. It is clear that the process will be significantly affected by how the króna problem associated the winding up of the old banks is dealt with, as an amicable solution could greatly expedite the removal of the controls. But the basic thinking will remain the same. The first element is to secure the framework conditions for lifting the controls, such as at least balanced public sector finances, an underlying current account surplus, and adequate FX reserves. All of this is either in place or well on its way. The second element is to put in place the economic policy frameworks and prudential rules that will make it possible for Iceland to deal with the risks associated with free and volatile capital movements. That is also underway. The third element is to reduce the overhang of liquid offshore krónur to a safer level, either through release at a discount or by tying the offshore krónur up in longer maturities and real investments. That is underway as well, although some are of the view that the process is too slow. The fourth element is to open market access and, through other means, generate longer-term inflows to replace the capital that wants to leave. History shows that those who jump early on such a bandwagon have a lot to gain.