The seven priorities of digital regulation in Latin America
The regulation of the digital world is a key issue for Latin America and a necessary condition for achieving relevance in this field on a global level. So far, Latin American regulators have adopted a “wait-and-see” attitude that aims to avoid slowing down innovation. However, a lack of action on the regulatory front could put the brakes on innovation in industries such as finance.
That was the warning issued by José Manuel González-Páramo, Head of Global Economics, Regulation & Public Affairs at BBVA. González-Páramo urged the authorities in the region to draw up a harmonized regulatory framework, one that guarantees a balance between innovation and the solidity of the financial system, and consumer protection.
“Regulators in Latin America right now have a great opportunity to provide access to the best digital services in a potential market of over 600 million people. The scale of the task and the need to develop a consistent and efficient regulatory environment are the challenges that lie ahead”, the BBVA executive board member said.
González-Páramo spoke at a panel discussion during the Third Integration Meeting of Ibero-America and the Pacific Alliance. The aim of the forum, sponsored by BBVA Continental and held in Lima, is to promote new ideas to favor greater trade integration in the region. It was attended by Peruvian President Pedro Pablo Kuczynski, among others.
What shape should this digital regulatory framework take?
The BBVA executive director identified seven priorities for this digital regulatory framework in Latin America. Firstly, securing “end-to-end” digital financial products and services - that is, ones in which the registration process is 100% digital. In order to make this a reality, the authorities have to put efficient and secure digital identity systems in place.
Secondly, guaranteeing data protection and the rules of access to data. As González-Páramo said in his presentation, “data are the wealth people have; they are the petroleum of the economy of the digital world.”
Cybersecurity standards that guarantee the protection and integration of data also need to be adopted. Another regulatory priority that must be addressed is ‘cloud computing’ in the financial sector. Likewise, the efficiency and robustness of the payments system needs to be strengthened, as does the development of ‘fintech’ innovation - for example, through regulatory ‘sandboxes’.
Lastly, José Manuel González-Páramo also identified guaranteeing a level playing field between new actors and the traditional financial sector as a priority.
José Manuel González-Páramo, Head of Global Economics, Regulation & Public Affairs at BBVA. González-Páram, during the Third Integration Meeting of Ibero-America and the Pacific Alliance. - BBVA
Why the need for harmonized digital regulations?
González-Páramo pointed out that the traditional regulatory framework of the finance sector has shortcomings, for example, in the flexibility and dynamism the digital environment demands. Likewise, it comes up short when dealing with the challenges required of a transverse regulatory system that covers areas such as consumer protection and the treatment of personal data.
So far, he said, the Latin American authorities had limited themselves to local intervention, rather than embracing regional coordination. However, the new digital environment dissolves barriers between countries and sectors, making it “necessary to formulate a harmonized response based on common principals”.
The BBVA executive director said a harmonized regulatory framework would help take advantage of the benefits of integrating Latin American markets, thereby, allowing economies of scale and multiplying the opportunities for efficiency gains. At the same time, defining common principles in the region would reduce regulatory arbitrage and the appearance of uncovered risks.
Digital transformation, the creator of opportunities
The BBVA executive director noted that currently we are immersed in the digital transformation of financial services, driven by the adoption of technologies with an exponential reach, and the development of innovative infrastructure and new business models, which makes better products and services available to customers.
He explained that this transformation brings with it the arrival of greater competition in the form of new entrants, both small ‘startups’ and large technological companies, which offer innovative solutions. The digitalization of financial services allows them to improve and expand in both offer and scope, reaching more people, including in rural areas, with greater speed, convenience and economic attractiveness.
González-Páramo said digitization presents the opportunity for financial inclusion in Latin America. This is fundamental to achieving inclusive economic growth and in reducing inequality, as the lack of access to financial services affects above all the more vulnerable sectors of the population.
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