The financial regulatory ecosystem continues to be buffeted by challenges from emerging technologies like stablecoins, cryptocurrencies and central bank digital currencies (CBDC). New roles are being imposed on regulators for maintaining financial stability. Howard Davies, chairman of the NatWest Group, shared his thoughts in this frank interview. He is also former chairman of the UK Financial Services Authority and deputy governor of the Bank of England.

Davies explained that the lack of cooperation between regulators all over the world has weakened and fragmented the global financial sector. Compared to what happened at the end of the last economic crisis in 2009 where countries came together and agreed to revise the rules in order to prevent another financial crisis, this time round, regulators have reverted to distancing themselves from one another.

Davies highlighted the growing complexity of the financial industry where multiple models of alternative currencies and coins are entering the space. Each of these models operates under different mechanisms and carries unique risks, making a unified regulatory approach an arduous quest. He emphasised the need for regulators to make financial stability and consumer protection their principal objectives.

While touted as potential game-changers, there are apprehensions regarding the impact on financial stability that these new models are making. In times of crisis, the ease with which funds could be moved from traditional bank accounts to alternative accounts might exacerbate systemic risks. Striking a balance between implementation and preserving the stability of the financial system remains a delicate task for regulators.

He nevertheless acknowledged that striking the right balance between regulation and innovation is critical. Overregulation could stifle advancements in the sector, hindering the growth and development of transformative technologies.